New Millennium South Korea : Neoliberal Capitalism and Transnational Movements [1 ed.] 9780203843895, 9780415582650

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New Millennium South Korea

Despite the commonly held belief that Asian nations have displayed anti-market tendencies of under-consumption and export-oriented trade since the Asian financial crisis, in the ten years since the crisis, South Korea has bucked this trend, accruing a higher debt rate than the US. This groundbreaking collection of essays addresses questions such as how did the open market policies and restructuring processes implemented during the Asian financial crisis magnify the consumption and debt level in South Korea to such an extent? What is the impact of these financial changes on the daily lives of people in different cultural and socio-economic groups? In examining these questions the authors provide valuable insight into the rise of financial capitalism, transnational mobility, and the implications of neoliberal governing tactics following the Asian financial crisis. Examining South Korea’s transformation during the early years of the twentyfirst century, New Millennium South Korea will be of interest to anthropologists, economists, and sociologists, as well as students and scholars of Korean Studies. Jesook Song is an Associate Professor at the University of Toronto. An anthropologist of Korea and a gender studies scholar, her interests include liberal governmentality, financialization, and youth education.

Routledge Advances in Korean Studies

1 The Politics of Economic Reform in South Korea A fragile miracle Tat Yan Kong 2 Market and Society in Korea Interest, institution and the textile industry Dennis McNamara 3 Social and Economic Policies in Korea Ideas, networks and linkages Dong-Myeon Shin 4 North Korea in the World Economy Edited by E. Kwan Choi, Yesook Merrill and E. Han Kim

  8 The Development of Modern South Korea State formation, capitalist development and national identity Kyong Ju Kim   9 Industrial Relations in Korea Diversity and dynamism of Korean enterprise unions from a comparative perspective Jooyeon Jeong 10 The Global Korean Motor Industry The Hyundai Motor Company’s global strategy Russell D. Lansbury, Chung-Sok Suh and Seung-Ho Kwon

5 Legal Reform in Korea Edited by Tom Ginsburg

11 Korean Workers and Neoliberal Globalisation Kevin Gray

6 Women, Television and Everyday Life Journeys of hope Youna Kim

12 Korea in the New Asia East Asian integration and the China factor Francoise Nicolas

7 Transformations in Twentieth Century Korea Edited by Chang Yun-Shik and Steven Hugh Lee

13 Foreign Direct Investment in Post-Crisis Korea European investors and ‘mismatched globalization’ Judith Cherry

14 Korea Confronts Globalization Edited by Chang Yun-Shik, Hyun-ho Seok and Donald L. Baker 15 Korea’s Developmental Alliance State, capital and the politics of rapid development David Hundt 16 Capitalist Development in Korea Labour, capital and the myth of the developmental state Dae-oup Chang 17 Political Protest and Labour Movements in Korea Solidarity among Korean whitecollar workers Doowon Suh

18 Retirement, Work and Pensions in Ageing Korea Edited by Jae-jin Yang and Thomas R. Klassen 19 South Korea under Compressed Modernity Familial political economy in transition Kyung-Sup Chang 20 New Millennium South Korea Neoliberal capitalism and transnational movements Edited by Jesook Song

New Millennium South Korea

Neoliberal capitalism and transnational movements Edited by Jesook Song

First published 2011 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN Simultaneously published in the USA and Canada by Routledge 270 Madison Ave, New York, NY 10016 This edition published in the Taylor & Francis e-Library, 2010. To purchase your own copy of this or any of Taylor & Francis or Routledge’s collection of thousands of eBooks please go to www.eBookstore.tandf.co.uk. Routledge is an imprint of the Taylor & Francis Group, an informa business © 2011 editorial selection and matter Jesook Song; individual chapters the contributors All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data A catalog record for this book has been requested.

ISBN 0-203-84389-4 Master e-book ISBN

ISBN 978-0-415-58265-0 (hbk) ISBN 978-0-203-84389-5 (ebk)

Contents



List of illustrations Notes on contributors Acknowledgements



Introduction: why Korea in the new millennium?

ix x xii 1

JESOOK SONG

PART I

Economic and sociological accounts 1

Globalization and social inequality in South Korea

9 11

KWANG-YEONG SHIN

2

Neoliberalism, the financial crisis, and economic restructuring in Korea

29

KANG-KOOK LEE

3

Neoliberalism in South Korea: the dynamics of financialization

46

JIN-HO JANG

PART II

Ethnographic and historical accounts 4

Contesting legal liminality: the gendered labor politics of irregular workers in South Korea

61 63

JENNIFER JIHYE CHUN

5

The will to self-managing, the will to freedom: the self-managing ethic and the spirit of flexible capitalism in South Korea DONGJIN SEO

84

viii  Contents 6

Educational manager mothers as neoliberal maternal subjects

101

SO JIN PARK

7

For the rights of “colonial returnees”: Korean Chinese, decolonization, and neoliberal democracy in South Korea

115

HYUN OK PARK

8

“Not-quite Korean” children in “almost Korean” families: the fear of decreasing population and state multiculturalism in South Korea

130

YOUNG-GYUNG PAIK

9

“If you don’t work, you don’t eat”: evangelizing development in Africa

142

JU HUI JUDY HAN



Index

159

List of illustrations

Figures 1.1 2.1 3.1 8.1

Job changes by income decile, 1993–2004 Income distribution in Korea Shareholding by foreigners in Korean Exchange Marriage agency advertisement for “Vietnamese brides”

20 41 52 136

Tables 1.1 1.2 1.3 1.4 1.5 1.6 1.7 2.1 2.2 2.3 3.1 3.2 3.3

Trends of foreign debt, 1993–1997 Change of number of employees by type of employment, 1994–2006 Welfare coverage by employment type Proportion of irregular job holders by class and gender, 2005 Average job tenure (in years) in major OECD countries in 1988 and 2008 Income inequality in selected countries Poverty ratio, growth rate, and unemployment rate, 1997–2004 Foreign debt and net capital inflows into Korea in the 1990s Foreign capital flows in Korea after the crisis Economic performance in Korea after the 1997 crisis Ratio of regular and non-regular workers, 1995–2003 Number of labor disputes and participants, 1993–2004 Amount of fund investment by type in Korea

15 18 19 19 21 22 23 32 37 39 53 54 55

Contributors

Jennifer Jihye Chun is an Assistant Professor in the Department of Sociology at the University of British Columbia, Vancouver. Her research focuses on the comparative study of work, culture, and politics with a focus on women and immigrants employed in low-wage work. Her book Organizing at the Margins: The Symbolic Politics of Labor in South Korea and the United States was published by Cornell University Press in 2009. Ju Hui Judy Han is a Korea Foundation postdoctoral fellow in Asian Studies at the University of British Columbia. Her doctoral research in geography at the University of California at Berkeley concerned contemporary Korean/ American evangelical Christian missions and their imbrications with politics of humanitarianism and developmentalism. Her ongoing research interests include political ideologies and conservative social and religious movements; the global political economy of English and travel; and questions of mobility, embodiment, and achievement. Jin-ho Jang is an Assistant Professor in the School of General Studies at Gwangju Institute of Science and Technology (GIST) in South Korea, where he teaches sociology and globalization studies. His research areas include sociology of finance and corporate governance, neoliberalism and social welfare, and global political economy. His published work includes “Analyzing Neoliberalism as Financial Hegemony: History, Dynamics, and Actors” and “Should Financialized Capitalism Be a Model for the Future of South Korea?” both in Korean. Kang-Kook Lee is an Associate Professor at the College of Economics at Ritsumeikan University in Japan. He is one of the leading economists in Korea on financial globalization and economic development, specializing in East Asian cases. His critical research on capital account liberalization and the movement of financial capital is important in understanding Korean neoliberalism. He has published several books, including Capital Account Liberalization and Economic Growth (2008), and articles in numerous academic journals. Young-Gyung Paik teaches anthropology and STS (science and technology studies) at KAIST (Korea Advanced Institute of Science and technology) and Seoul National University. She recently obtained her Ph.D. in anthropology

Contributors  xi from Johns Hopkins University, with a dissertation entitled “Technologies of ‘the Korean Family’: Population Crisis and the Politics of Reproduction in Contemporary South Korea.” Her research interests include biopolitics and feminism, the ethical implications of newly emerging biotechnologies, and the changing family in the context of the current reproductive crisis in South Korea. Hyun Ok Park is an Associate Professor of Sociology at York University. She has published widely on transnational migration, global capitalism, post-colonialism, diaspora, democracy, and comparison and comparability. Her book Two Dreams in One Bed: Empire, Social Life, and the Origins of the North Korean Revolution in Manchuria (Duke University Press, 2005) concerns the Korean migration, the Japanese empire, and the capitalist crisis. She is now completing a book manuscript tentatively entitled, “From National to Market Utopia: History, Democracy, and Transnational Korea.” So Jin Park is a research fellow at the Institute for Social Development Studies, Yonsei University. She received her Ph.D. in cultural anthropology from the University of Illinois at Urbana-Champaign. Her recent publications include “Reconsidering Korean Culture and Society and Seeking Self Identity in the World: Short-Term Study Abroad Motivation and Experiences (2010, in Korean) and “College Rank and Neo-Liberal Subjectivity in South Korea: The Burden of Self-Development” (2009, co-authored). Her research focuses on Chinese students in Korean universities. Dongjin Seo is an Associate Professor of Critical and Cultural Studies at the Kaywon School of Arts and Design, Korea. His research focuses on the articulation of culture and economy in the current capitalist constellation. His published books include Who Would Be Afraid of Sexuality Politics (1996), Design Melancholia (2009), and The Will to Liberty, Will to Self-Empowering: The Birth of Self-Empowering Subjects in the Neo-Liberal Korean Society (2009). Kwang-Yeong Shin is a Full Professor of Sociology at Chung-Ang University in Seoul, Korea. His research has focused on social inequality and class politics in contemporary Korea and East Asia. His recent publications include Class and Inequality in Korea (2004) and Globalization and Inequality (2007). He is currently completing a book on inequality in Korea. Jesook Song is an Associate Professor in the Department of Anthropology, University of Toronto, Canada. She is an urban anthropologist and gender/ sexuality studies scholar, and her research and teaching focuses on neoliberal social governing, the financialization of everyday lives, spatial and discourse analysis, and the psychologization of education subjects in South Korea. Her book South Koreans in the Debt Crisis: The Creation of a Neoliberal Welfare Society was published by Duke University Press in 2009.

Acknowledgements

I would like to thank all those who contributed to the supportive environment which encouraged the development of this edited volume. First and foremost, my gratitude goes to the contributors, who have been patient, helpful, and enthusiastic during every step of this book-making process. This project began with a workshop on neoliberalism in South Korea, which was held at the University of Toronto in early 2008. It turned out to be one of the rare days in Toronto when the whole campus was closed down thanks to severe weather conditions. I am grateful to all participants, including presenters, discussants, administrators, and assistants, who, despite the problems and travel delays that resulted from the weather, made the workshop into something critical, engaging, amicable, and memorable. I appreciate the crucial input from Nancy Abelmann and Tania M. Li as well as other Markets and Modernities group members. The workshop and the production of this edited volume was generously supported by a grant from the Academy of Korean Studies (AKS-2007-C-01), and financial and institutional support from the University of Toronto, including the David Chu Distinguished Scholars Program, the Centre for the Study of Korea, and the Asian Institute. In particular, I would like to thank Joshua Barker and Joseph Wong for their steadfast and genuine support. For their valuable skills and hard work in the process of turning the workshop proceedings into the book manuscript, I am greatly indebted to Jane Springer, Kris Meen, Jiwon Bang, Yoonhee Lee, and Sunyoung Yang. Finally, this book would not have seen the light of day without the helpful guidance and unfailing patience of the Routledge editors that I have worked with, especially Stephanie Rogers, lead editor of the Contemporary China series, as well as Sonja van Leeuwen and Leanne Hinves. Every effort has been made to contact copyright holders for their permission to reprint material in this book. The publishers would be grateful to hear from any copyright holder who is not here acknowledged and will undertake to rectify any errors or omissions in future editions of this book.

Introduction: why Korea in the new millennium? Jesook Song

The Economist’s January 2009 special issue on Asia spells out the tenets of Western-centered free-market ideology, and blames Asian countries and their anti-market tendencies of under-consumption, export-oriented trade and yet-tobe-privatized property for the global financial crisis that began in fall 2008.1 A condescending, dissatisfied tone is evident throughout the issue. The Economist states that “Asian governments must introduce structural reforms that encourage people to spend and reduce the need for them to save. In China, farmers must be given reliable title to their land so that they can borrow money against it or sell it” (2009b); “It seems so unfair. Most Asian economies have been models of prudence. While American and European households were borrowing up to the hilt, Asian ones were tucking away their savings” (2009a: 75); and “Asia’s low rate of consumption and borrowing means that it has huge scope to make consumption the engine of growth over the next decade. In previous downturns, Asians were forced to take nasty medicine. Having to go out and spend would surely make a nice change” (ibid.: 77). It is remarkable to find such confidence in the free-market economy. After all, the IMF and World Bank’s pressure on the non-West and global South to minimize government regulation has been a failure that has deprived the working poor of subsistence and a means of making a living. As Kwang-Yeong Shin, Kang-Kook Lee, and Jin-Ho Jang demonstrate in this volume, in their respective discussions of the social, macroeconomic, and microfinancial effects of neoliberalism in South Korea, the most recent example of the failure of these international financial institutions is the bailout of the formerly prosperous late-industrializing East and Southeast Asian countries during the Asian financial crisis (1997–2001). The Economist’s confident free-market perspective is especially surprising at this point in the global financial crisis because many consider the regulations of financial and insurance markets that have been imposed and the protectionist moves of leading liberal capitalist states in response to the crisis to be a demonstration of the limits of neoliberal market ideology. It seems contradictory to insist that Asian countries should become models of deregulation, open markets, and import-driven economies when liberal capitalist states are strongly intervening in their domestic economies by nationalizing banks and bailing out major corporations and insurance companies. The US government, for example, is taking the “protectionist” position of prohibiting the use of foreign products in the US manufacturing process when domestic products are available.2

2  Introduction Despite the generalization that “Asian prudence” is the problem for the global economy, The Economist notes that “South Korea is an exception to the rule of Asian prudence. Its households’ debt amounts to 150 per cent of disposable income, even higher than in America. The banking system, which borrowed heavily abroad to finance a surge in domestic lending, has also been badly hit by the global credit crunch, making it harder for firms to finance investment” (ibid.: 76). How is it that late-industrializing South Korea – with less consumption and more savings – has managed to exceed the debt rate of the US? How did the open-market policies and restructuring processes implemented during the Asian financial crisis magnify the consumption and debt level in South Korea to such an extent? What are the impacts of these financial changes on the daily lives of people in different cultural and socio-economic groups? Considering that it is almost impossible for a contemporary state to block the movement of people, ideas, and goods beyond its sovereign territory, how does the South Korean transformation influence other regions of the globe? These are the questions that chapters of this volume directly engage with, defining core aspects of changes that have taken place in South Korea over the course of the first decade of this new millennium (1997–2008). South Korean capitalism and socio-political dynamics have been heavily influenced by the country’s colonial relationship with Japan and by the Cold War order (configured in opposition to North Korea), the latter of which includes the US military’s ongoing presence in the country as of the Korean War. The combination of the end of the military dictatorship in 1987 and the full implementation of neoliberal governing tactics following the Asian financial crisis consolidated financial capital as a dominant capitalist force (see the chapters by Jang and Lee in this volume); rendering job/education markets and labor power precarious (see the chapters by Chun and So Jin Park in this volume); putting the burden on the individual, and providing little social protection (see the chapters by Seo and So Jin Park in this volume); thus producing extreme polarization and social inequality (see Shin’s chapter in this volume). Being relatively more advanced in the market economy system than neighboring Asian nation-states, South Korea has become a locus of labor import, attracting temporary workers from Southeast and South Asia for low-tier jobs, such as domestic, farm, and manual work (see Paik’s chapter in this volume), as well as Korean Chinese returnees and refugees from North Korea (see Hyun Ok Park’s chapter in this volume). Externally, South Korea replicates imperial practices in other late-developing countries by promulgating economic development expertise, exploiting low-wage labor, enjoying vast markets for Korean commodities, and dispatching overseas Christian missionaries (see Han’s chapter in this volume). The neoliberal changes in the new millennium in South Korea offer an insightful terrain for intellectual thinking. Foucauldians consider neoliberalism to be an advanced version of liberalism that shares the appearance of being a democratic polity with classical liberalism but is more proactively adjusted to the capitalist market economy (Foucault 1991, 2008; Gordon 1991; Lemke 2001). By showing that classical liberalism itself historically swung between “illiberal” and “liberal” practices through colonialism and land appropriation, Barry Hindess defines

Introduction  3 neoliberalism as “a liberal response to the achievements of the liberal mode of government” (1993: 311). If we apply this definition to neoliberalism in South Korea, how do we identify the temporal, political-economic, and epistemological differences between neoliberalism and liberalism in South Korea? Neoliberalism in European/North American nation-states is a response to a century-long establishment of liberalism and assumes the presence of “old” liberalism. Since this is clearly not the case in South Korea, we must redefine and reconceptualize the notion of neoliberalism itself. As I have elaborated elsewhere (Song 2009), neoliberalism in relation to liberalism is similar to the concept of postmodernity in its relation to modernity, in that it is futile to make a clear-cut distinction between “premodern,” “modern,” and “postmodern” for late-industrializing countries. Likewise, neoliberalism as a response to existing liberalism encompasses a different combination of politicoeconomic and socio-cultural modalities, such as liberalism, socialism, welfarism, fascism, and feudalism, depending on each nation-state or region’s historical contingency in the process of interacting with and competing in the capitalist market system. South Korean neoliberalism emerged in the historical context of struggles between dominant “illiberal” and marginal but forceful “liberal” sociopolitical components: between the military developmental state and an anti-state social body as well as between conservative gender/sexuality/family norms (a mixture of neo-Confucian and orthodox Protestant heritages) and liberalistic women’s movements. Despite the various combinations and inheritances, what makes neoliberalism a global phenomenon is the way in which financial capital became hegemonic as a mode of capitalist production and accumulation (Harvey 2005). Some scholars argue that this financialization is different from the finance capital that Marx (1991), Hilferding (1981), and Lenin (1939) observed as of the late nineteenth century, when corporations and banks monopolized the financial sector for maximum accumulation. They point out that the recent process of financialization is robustly based on individual households’ financial practices and contributions rather than on corporate finance (Lapavitsas 2003, 2008). Yet other scholars find similarities between neoliberal financial dominance and earlier phenomena in that financial capitalists (merchant capital and money capital) have power over the manufacturing process as investors (Sunder Rajan 2006). Harvey describes this process as a class struggle between capitalists – one that financial capitalists won over industrial capitalists (2005: 31–5). Korean neoliberalism was amplified following the Asian financial crisis. In the process of opening South Korean markets to free trade and restructuring the country’s industrial and financial systems, many manufacturing companies collapsed and an information technology-based service industry and financial market were built up (Song 2009).3 In this volume, Lee’s chapter and Jang’s chapter further explicate the process from the perspectives of a macroeconomist and a sociologist, respectively, of political economy of financialization process. Most academic texts that describe the rapid changes in South Korea tend to reach only to the mid-1990s, and have a strong socio-cultural focus. For instance, Samuel Kim’s volume (2000) focuses on the globalization (segyehwa) of the Kim

4  Introduction Young-Sam regime in the early 1990s; Charles Armstrong’s volume (2002) centers on the emergence of “civil society” in the early and mid-1990s;4 Laurel Kendall’s volume (2002) pays specific attention to gendered processes of the post-liberalization period in South Korea in the 1990s; and Tangherlini and Yea’s volume (2008) approaches South Korean society in the last few decades with a cultural-historicalgeographical perspective. The available books on political-economic analysis do not include ethnographic and cultural accounts of the impact of neoliberalization on people’s lives (e.g. Woo-Cumings 1999), and other books focus very closely on particular areas, such as welfare (Song 2009), labor (Chun 2009), intellectual movements (Lee 2007), or militarism (Moon 2005). It is difficult to find books that go beyond the mid-1990s, never mind texts addressing the new millennium, and which include both political-economic and socio-cultural accounts.5 In this context, New Millennium South Korea is one of the first volumes focusing on South Korea from the late 1990s through the early years of the new millennium, one which demonstrates the kaleidoscopic transformations that have taken place over that span of time. Discussing the key features of transformation as they are related to neoliberalization, this book focuses on the rise of post-industrial and transnational movements of capital, labor, education, and religion. The themes are approached from both macro- and micro-levels and from a multi-disciplinary perspective – anthropology (S. Park; Paik), cultural studies (Seo), economics (Lee), geography (Han), history (H. Park), and sociology (Shin; Jang; Chun). New Millennium South Korea sheds light on two major aspects of the ongoing transformation of post-millennial South Korea, which is the logic behind the division of the book into two parts. The first part maps out the macroperspective, featuring political, economic, and sociological observations of the neoliberal market economy and subsequent developments in class polarization, and the capitalist recalibration that has taken place within the nation. The second part traces the micro-level details of ethnographic, cultural and historical observation with regard to labor relationships, social governing processes, education engineering, the movements of people across nation-state boundaries, and the emergence of new identities through which neoliberal social governing operates and is reproduced. This volume aims to reach a wide general audience both within and outside of the university classroom in Anglophone, Korean-speaking, Sinophone, and Japanese-speaking audiences. It demonstrates how the current politicoeconomic and socio-cultural situation of South Korea is a trajectory marked by its status as a late-industrializing nation in the context of interaction with the neoliberal global economy. South Korea shares similarities with other latedeveloping countries in that capitalist modernity and global influences are manifested in a condensed and compressed manner. At the same time, as a result of its unique geo-political history and its relation to China and Japan, and other late-industrializing Asian nations, South Korea offers a useful perspective on the Asian regional politico-economic order beyond the nation-state boundary. Many late-industrializing nations and their societal elites which are seeking models of effective economic development tend to situate South Korea as an exemplary case for fast economic success.6

Introduction  5 However, this is the time to demonstrate the consequences of this success both within and beyond the national boundary. Many unexpected and alarming socio-economic and politico-cultural phenomena rose as results of rapid development and economic growth. Hyun Ok Park’s chapter considers the incoming movement of Korean Chinese labor migrants to South Korea, who replaced the low-paying/stigmatized manual work force and ended up being implicated in the creation of an ethnic hierarchy within migrant labor markets which legitimized the lower status and income of non-Korean ethnic migrants. Paik’s chapter examines bride migrants to South Korea coming from economically weaker regions of Southeast Asia in order to balance out the gender ratio of the marriage market for the benefit, in particular, of unpopular peasant bachelors. This movement effected questions over authentic citizenship and imperatives over assimilating foreign brides to Korean culture while utilizing them to salvage a decreasing population. Han’s chapter unpacks the outgoing movement of Korean Protestant missionaries to other regions, particularly to Africa, and how this movement deploys Korean development ethics in engineering a framework for missionary education programs that presumes that Korean economic prosperity evinces God’s blessing to its Christianized populations. Paralleling these transnational aspects, market-induced competition especially throughout and after the Asian financial crisis in South Korea has taken its toll on domestic social life as well. Chun’s chapter elucidates a new realm of gender discrimination – in addition to existing inequalities – in the labor force which has emerged through the invention of various forms of irregular employment in women-dominated sectors. Further, diversified forms of unionizations emerging out of new forms of employment have produced tensions within union movements in that all-or-nothing kinds of collective struggle are not always effective in resolving the problems of small unions made up of irregular workers situated in the complicated dynamics of labor–capital. Seo’s chapter outlines the insidious process of constructing neoliberal human value that eulogizes self-managing practices as the utmost implements in the toolkit of empowering techniques, a construction that assumes that it is simply a matter of individuals’ will and freedom to control risks faced in society. Seo brings this process into relief by analyzing the many self-help books for selfmanagement skills that became best-sellers throughout the crisis in Korea. So Jin Park’s chapter illuminates the vicious circle taking shape in the domain of motherhood in response to a neoliberal education market. Neoliberal education policy pushes mothers to be active participants and consumers in the market of private education for their children which in turn becomes a key operative in (re)producing the neoliberal view of self-manageable personhood for both subjects of mothers and children and in accelerating the privatization of educational costs to the point of further polarizing gaps between socioeconomic classes. Finally, it is important to understand how South Korea is affected by and contributes to the devastating consequences of neoliberalism in the global South and the marginalized labor/welfare sector in the global North. While the consequences are structurally imposed, neoliberalism makes use of individual agential power,

6  Introduction encouraged by institutional supports such as the state and/or religion, to induce the transnational movement of people seeking a better life. New Millennium South Korea addresses these multifaceted aspects as they involve South Korea and South Koreans as middle-managers of the global South and global North at the turn of the new century, providing rich data and critical examinations of neoliberalism and transnationalism from the perspective of a late-industrializing country that cannot be simply reduced to a position of “victim” in the global order.

Notes 1 David Laibman (2009) notes that it is not simply a financial crisis but an overall crisis of productivity arising from the maximized exploitation of labor in both production (where there is precarious employment with an absence of benefits) and consumption (where there is a credit system that binds the working poor in a cycle of debt and bankruptcy). 2 Although Ha-Joon Chang’s works (2002, 2007) were written before the global financial crisis, they offer insightful critiques of the free-market policy directions of the international financial institutions – such as the IMF and World Bank – given to lateindustrializing countries. 3 The history of South Korean financial markets is beyond the scope of this book. See MyungHwui Lee (2005) for modernized rotation credit associations; Laura Nelson (1991) and Jesook Song (forthcoming) for the relationship between the rotation credit associations and the South Korean rent system; and Lee et al. (2002) for recent changes in the financial sector. 4 Civil society is the conventional label for political and socio-cultural organizations and activities independent of state control that emerged following the end of the military dictatorship in the late 1980s. Civil society is a marker of the democratization and liberalization of Korean society. 5 Given the rapid changes that South Korea has gone through over the five decades since the Korean War, it is no surprise that academic texts have not kept pace. Besides this, we might make a critical self-examination of academic knowledge production in asking a philosophical question about whether it is possible to make a synchronic analysis of the present (Miyazaki 2004). 6 Japan’s case is somewhat different because of its former role as a colonizer.

Bibliography Armstrong, C.K. (ed.) (2002) Korean Society: Civil Society, Democracy and the State. London: Routledge. Chang, H.J. (2002) Kicking Away the Ladder. London: Anthem Press. —— (2007) Bad Samaritans: Rich Nations, Poor Policies, and the Threat to the Developing World. London: Random House Business Books. Chun, J.J. (2009) Organizing at the Margins: Labor Politics and Globalization in South Korea and the United States. Ithaca, NY: Cornell University Press. The Economist (2009a) “Briefing: Asian Economies: ‘Troubled Tigers,’” January 31: 75–7. —— (2009b) “Leader: Asia’s Suffering,” January 31: 13. Foucault, M. (1991) “Governmentality,” in G. Burchell, C. Gordon, and P. Miller (eds.), The Foucault Effect: Studies in Governmentality, 87–104. Chicago: University of Chicago Press. —— (2008) The Birth of Biopolitics. New York: Palgrave.

Introduction  7 Gordon, C. (1991) “Governmental Rationality: An Introduction,” in G. Burchell, C. Gordon, and P. Miller (eds.) The Foucault Effect: Studies in Governmentality, 1–52. Chicago: University of Chicago Press. Harvey, D. (2005) A Brief History of Neoliberalism. Oxford: Oxford University Press. Hilferding, R. (1981) Finance Capital: A Study of the Latest Phase of Capitalist Development. London: Routledge and Kegan Paul. Hindess, B. (1993) “Liberalism, Socialism and Democracy: Variations on a Governmental Theme,” Economy and Society 22, no. 3: 300–13. Kendall, L. (ed.) (2002) Under Construction: The Gendering of Modernity, Class, and Consumption in the Republic of Korea. Honolulu: University of Hawaii Press. Kim, S.S. (ed.) (2000) Korea’s Globalization. Cambridge: Cambridge University Press. Laibman, D. (2009) “The Onset of Great Depression II: Conceptualizing the Crisis (Marxist Economists on the Crisis, 2nd Round).” Workers’ Liberty: For International Working Class Solidarity and Socialism, January 13. Online. Available HTTP: (accessed May 21, 2009). Lapavitsas, C. (2003) Social Foundations of Markets, Money and Credit. London: Routledge. —— (2008) “Financialised Capitalism: Direct Exploitation and Periodic Bubbles.” Online. Available HTTP: (accessed May 6, 2009). Lee, C.H., Lee, K., and Lee, K.K. (2002) “Chaebols, Financial Liberalization and Economic Crisis: Transformation of Quasi-Internal Organization in Korea,” Journal of Asian Economics 16, no. 1: 17–35. Lee, M.H. (2005) “1950–60 Nyôndae kye wa sagûm’yung sijang” (Gye and the Unorganized Financial Market in 1950–1960s), Yôsông kyôngje yôn’gu (Women’s Economic Research) 2, no. 1: 127–50. Lee, N. (2007) The Making of Minjung: Democracy and the Politics of Representation in South Korea. Ithaca, NY: Cornell University Press. Lemke, T. (2001) “‘The Birth of Bio-Politics’: Michel Foucault’s Lecture at the Collège de France on Neo-Liberal Governmentality,” Economy and Society 30, no. 2: 190–207. Lenin, V.I. (1939) Imperialism, the Highest Stage of Capitalism: A Popular Outline. New York: International Publishers. Marx, K. (1991) Capital, vol. III. London: Penguin Books. Miyazaki, H. (2004) The Method of Hope: Anthropology, Philosophy, and Fijian Knowledge. Stanford: Stanford University Press. Moon, S. (2005) Militarized Modernity and Gendered Citizenship in South Korea. Durham, NC: Duke University Press. Nelson, L. (1991) “The Korean Chonse System of Housing Rental.” Unpublished master’s thesis, University of California, Berkeley. Song, J. (2009) South Koreans in the Debt Crisis: The Creation of a Neoliberal Welfare Society. Durham, NC: Duke University Press. —— (2010) “A Room of One’s Own: The Meaning of Spatial Autonomy for Unmarried Women in Neoliberal South Korea,” Gender Place and Culture, 17, no. 2: 131–49. Sunder Rajan, K. (2006) Biocapital: The Constitution of Postgenomic Life. Durham, NC: Duke University Press. Tangherlini, T.R. and Yea, S. (eds.) (2008) Sitings: Critical Approaches to Korean Geography. Honolulu: University of Hawaii Press. Woo-Cumings, M. (ed.) (1999) The Developmental State. Ithaca, NY: Cornell University Press.

Part I

Economic and sociological accounts

1 Globalization and social inequality in South Korea Kwang-Yeong Shin

Globalization has been a popular research topic since the late twentieth century, but scholars have been divided with respect to the impact of globalization on the economy and society (Giddens 1999; Held et al. 1999; Hirst and Thompson 1996; Ohmae 1990, 1995; Stiglitz 2002). While there have been many critiques of the globalization initiated by international financial organizations such as the IMF and the World Bank or by advanced countries such as those of the G-7, globalization has become an economic and ideological hegemony reshaping the sovereignty of nation states. There has been an increasing threat to the livelihood of workers, peasants, and the urban poor in most of the Western world and in nonWestern countries. Nevertheless, countries such as China and India have hailed the opportunity opened up by globalization to promote economic growth. Globalization has never been a homogenous social process. Contrary to the predictions of some social scientists, different social systems have not converged as globalization has proceeded. The processes and outcomes of globalization vary significantly across countries as local or national actors interact with global actors. While some have predicted the dominance of neoliberal globalization and the demise of the welfare state in Europe, national variations still persist among advanced industrial societies (Esping-Anderson 1990; Hall and Sockice 1990; Huber and Stephens 2003; Stallings and Streeck 1993). Thus, path dependency, a concept used to describe institutional persistence in which antecedent conditions delimit subsequent developments, has become an apt new concept to explore the cross-national variation among advanced industrial countries over the last three decades (Korpi 2008; Mahoney 2000; Pierson 2000). The Korean economy has been integrated into the world economy since the beginning of its export-oriented industrialization in the 1960s. Now, with the liberalization of the financial market, deregulation of international trade, and enhanced flexibility of the labor market, the Korean economy is fully integrated into the global economy. Globalization in Korea is distinctive in two respects. First, Korea experienced abrupt neoliberal globalization through the crisis of the national economy triggered by the collapse of the financial sector in December 1997, as part of the Asian financial crisis. The financial crisis accelerated the opening of the domestic market to international investors and foreign companies. The Korean government carried out extensive neoliberal economic reforms during the financial crisis under the guidance of the IMF and the World Bank, fully liberalizing

12  Kwang-Yeong Shin the domestic financial market and privatizing the public sector. Second, globalization took place during the democratic transition. The newly formed democratic government carried out neoliberal economic reforms that immediately affected people’s economic welfare – sharpening economic inequality and increasing poverty – and undermined the social basis of the new government. The expectations of the people who supported the leftist, Millennium Democratic candidate in the presidential election in 1997 were betrayed by the government’s neoliberal economic reforms. In short, the dual effects of political democratization and economic neoliberalization intensified social inequality and threatened the new democracy. The victory of the conservative Grand National party candidate Lee Myung-bak in the 2007 presidential election demonstrated a reaction by the many frustrated people who voted for Roh Moo Hyun, who won the presidential election as the Millennium Democratic party candidate in 2002. This chapter explores the Korean experience of globalization during the democratic transition, focusing on the role of international financial institutions in implementing neoliberal economic reforms and the consequences in terms of employment relations and income distribution. The Korean odyssey of globalization reveals that at the national level it is a political and economic process of reshaping local politics, while at the international level it is a highly political project advanced in order to enhance the interests of global capital. The newly democratic post-1997 governments played a pivotal role in institutionalizing neoliberalism in Korea. The concurrence of globalization with democratization shook the foundation of the vulnerable new democracy in Korea, resulting in the waning of support for the democratic government. While the political despotism that underpinned the developmental state has been significantly weakened by the democratic government, market despotism is now threatening people’s economic security.

The crisis of the authoritarian developmental state The accumulation regime developed during the rule of Park Chung Hee persisted for more than two decades, until the late 1980s. In the early 1960s, the military government launched a series of policies for economic growth that advocated intervention in the allocation of financial resources and the commodity market (Amsden 1989; Johnson 1982; Wade 1990). The developmental state supported chaebol, the family-controlled conglomerates, to promote heavy and chemical industries by subsidizing private companies and providing them with tax exemptions. Getting the state subsidy and bank loans was a common way for chaebol to expand their business because the state monopolized banks and controlled financial resources. Big companies supported by the authoritarian state could be classified as soft-budget constraint (SBC) firms, to use Janos Kornai’s term, in which company growth was based not on its own innovation but on loans from banks and the state (Kornai 1979, 1980, 1986).1 Chaebol companies could get financial subsidy from the state even when they were in trouble. Thus, it became a commonplace that “big horses never die” (because they are too big to fail) in the 1970s and 1980s in Korea.

Globalization and social inequality in South Korea  13 Korean state capitalism – upheld by political dictatorship and an economy which was a mix of free market and state planning – was challenged by both internal and external conditions in the late 1980s. The major internal challenge to the authoritarian developmental state was the anti-dictatorial movement that had been gaining support since the mid 1980s. Chun Doo Hwan, who captured military power after the Kwangju massacre, eventually seized state power and became president in 1981. The new military rule was based on state violence, relying on the military and the police. The Chun regime, which suffered from a lack of legitimacy from the beginning, could not continue its oppression of the political opposition, because of the Olympic Games that were to take place in Seoul in 1988. The government began easing its oppression in 1984 under the threat of an international Olympic boycott. The struggle for democracy by university students and the political opposition grew more militant in 1985 and eventually succeeded in crippling the Chun regime in the summer of 1987, when it accepted such demands as free competitive presidential elections and a free press. Externally, the authoritarian developmental state was damaged by the US Congress’ revocation of the General System of Preference (GSP). Prior to the US Congress’ action to lower the trade deficit in the late 1980s, Korea had enjoyed an unprecedentedly low exchange rate of the Korean won to the US dollar, as well as low oil prices and low interest rates in the mid 1980s. For the first time in modern Korean history, Korea developed a huge trade surplus. The same was true of other East Asian countries, including Japan and Taiwan. The expansion of their economies generated economic conflicts between the US and East Asian countries. As the American trade deficit against East Asian countries reached a historic high in the early 1980s, it became an important political issue in American politics. Under pressure from business and labor, the US Congress and government launched economic retaliation against East Asian countries. The US Congress agreed to stop giving preferential treatment to Korean exporters to the US market. In 1988, the US introduced new rules, including Super 301, which demanded that, in order to reduce the trade deficit, the US Trade Representative investigate all practices of international trade prioritization. With the collapse of the Cold War, the US became aggressively unilateralist in its trade strategy, demonstrating that protecting the interests of US business was more important than its military alliance with East Asian countries (Jackson 1994: 446–8). The democratic transition beginning in 1987 did not alter the nature of the authoritarian developmental state, because the ruling party candidate won the first competitive presidential election since 1968 thanks to the spirit of two leaders of the opposition parties, Kim Dae Jung and Kim Young-Sam. Rho Tae Woo, an ex-army general and an authoritarian ruling-party candidate, won the presidential election in December 1987 and maintained the relationship among the state, labor, and capital developed during the authoritarian regime. While the new parliament agreed to revise the labor relations law that restricted workers’ legal rights, Rho vetoed the bill passed in the National Assembly in 1988. However, he could not oppress the labor movement as severely as previous governments. Democratization, with the strengthening of labor unions and public support for the labor movement, significantly curtailed presidential power to intervene in labor disputes.

14  Kwang-Yeong Shin The diminished role of the government in labor disputes aggravated the relationship between the state and business. Business leaders who supported Rho Tae Woo in the presidential election of 1987 were dissatisfied with his labor policy and began to voice their discontent, making new demands. The Hyundai Group in particular, one of the largest of the chaebol, became engulfed in a series of huge labor strikes, and complained about the weakening of the state’s ability to effectively deal with the labor movement. There was a revolt of capital against the state when Chung Joo Young, owner of the Hyundai Group, declared that he would run for president in the 1992 election, criticizing the impotence and corruption of politicians and the president. Although Chung failed to win the election, symbolically he represented a change in the relationship between capital and the state that had persisted for almost three decades. The negotiation of the Uruguay Round (UR) in 1994 was to restructure the international trade rules set out by the General Agreement on Tariffs and Trade (GATT) at the end of the Second World War. Because East Asian countries benefited from the previous system, the advanced industrial countries tried to restrict state protection of the domestic market in East Asian countries. The developmental state policies became a target of criticism by Europe and North America. As East Asian countries became more influential in the international economy, state protectionism and deregulation became more critical issues in the negotiation of the UR. As the Korean economy continued to grow, the Organisation for Economic Co-operation and Development (OECD) and the US strongly recommended that Korea become a member of the OECD. The Federal Reserve Bank (FRB) of the US and the OECD asked Korean delegates to participate in the 1990 OECD meeting to discuss lowering interest rates. The American government claimed in its report to Congress that it would guide the Korean government to join the OECD, then demand the lifting of tariff and non-tariff barriers on American exports. Lowering import tax rates was the key issue of trade between Korea and other advanced industrial countries. While the Korean government promised to lower the tariff gradually, the OECD demanded a more rapid decrease in the tariff and interest rate in 1990.2 Foreign business also demanded an opening of the domestic market to foreign capital. For example, the American Chamber of Commerce in Korea (AmCham) pressed for the opening of service markets, including the banking and insurance markets (Korea Times 1995a). The first Korean response to the changing international economic environment came from the Kim Young Sam government when it advocated segyehwa, the Korean version of globalization, in 1994. Before Kim’s declaration of the Korean state’s new strategy of globalization, there had been continuous interaction between the Korean government and other international organizations. The OECD demanded the membership of Korea in the late 1980s. In 1990, the Korean government agreed to join the OECD by 1993, but postponed the date of entry until 1996 to have time to meet OECD standards. Thus, entry into the OECD became an important issue at both the national and international levels. Kim Young-Sam claimed that joining the OECD would give Korea international recognition as a member in “a club of advanced countries” and treated it as

Globalization and social inequality in South Korea  15 a historic achievement of his government. The globalization Kim propagated was aggressive mercantilism in the international market. The government established graduate schools of international studies in major universities and improved English teaching at the high school level to enhance international competitiveness. “Globalization and competitiveness” became the hegemonic buzzwords in Korean society in 1994.3 The OECD demanded that the Kim government carry out institutional reform based on OECD standards, including labor standards and transparency of corporate governance. The core of the demands was a reduction in state intervention in the economy, enabling the market to play a central role. While state intervention in the economy decreased in the early 1990s, corporate behavior did not change much. As chaebol challenged the economic reforms of the Kim Young-Sam government by the withholding of new investments in the economy, the government gave up labor relations reform including the introduction of a non-interventionist policy in industrial relations and legalization of plural unions and transformation of chaebol governance structures during the first half of 1993 (Shin 2004). The immediate impact of Korea’s entry into the OECD in 1996 was an upgrade of its credit rating on the international market. The Japan Bond Research Institute (JBRI) assigned an AA+ rating to Korea, which was almost equal to those of Denmark and Ireland, and higher than those of Australia, Hong Kong, Finland, and Italy (Korea Times 1996). The European Credit Agency and the International Bank Credit Agency also agreed that Korea’s membership in the OECD would enhance its economic performance (Korea Times 1997a). Upgrading Korea’s credit rating allowed Korean conglomerates to get bank loans more easily than before, and the average debt-to-equity ratio of the top thirty conglomerates increased from 347.5 percent in 1995 to 386.7 percent in 1996 (Korea Herald 1997).4 Without reforming the SBC nature of big companies, the new economic environment allowed them to borrow from international financial organizations. Big companies tried to expand by borrowing money from foreign banks. A year before the financial crisis, a central bank official described this situation as follows: “the corporate desire to borrow endlessly appears to be one of the key reasons for the current high-cost, low-efficiency industrial structure in Korea” (Korea Times 1996).

The economic crisis and neoliberal reform When Southeast Asia was engulfed by the Asian financial crisis, the Korean government repeatedly declared that the Korean economy was strong enough to endure economic volatility. Meanwhile the major chaebol faced bankruptcy.5

Table 1.1  Trends of foreign debt, 1993–1997 1993

1994

1995

1996

1997

$42.8 billion

$56.9 billion

$78.4 billion

$110 billion

$140 billion

Source: Bank of Korea (1994).

16  Kwang-Yeong Shin Once Korea became a member of the OECD, it was not possible for the Korean government to subsidize them as it had in the past. The economic crisis was a consequence of the high debt ratio of foreign loans and big companies’ inability to repay on time. As a series of bankruptcies took place in the first half of 1997, international credit rating agencies downgraded the credit rate of Korean banks, making it more difficult for Korean companies to borrow from the international financial market.6 This created a chain of bankruptcies that caused the default of financial organizations, including large banks. The Korean won slumped, aggravating the financial difficulty. Because the government had changed from the fixed exchange rate system to the floating exchange rate system when Korea became a member of the OECD, it lost the leverage of controlling the exchange market. The collapse of the banking system shattered the economy, paralyzing foreign trade. This marked the beginning of the financial crisis. The Korean government demanded a rescue loan from the IMF and the World Bank. Immediately US$3 billion was allocated for the rescue loan as part of the macroeconomic policy agreement between the Korean government and the IMF (IMF 1997). The World Bank also provided a rescue loan to Korea. The largest bailout in World Bank history was conceded on the condition that the Korean government take action to implement World Bank reforms (World Bank 1998a). While the IMF focused on short-term actions to deal with the crisis, the World Bank dealt with the longer-term reconstruction of the economy (World Bank 2004: 47). The reforms demanded by the IMF and the World Bank included four major areas: financial sector reform, privatization of the public sector, corporate governance reform, and an enhancement of labor market flexibility. The structural reform the World Bank demanded was a complete restructuring of the Korean economy that had been shaped under the developmental state. The principle of the structural reform can be summarized as neoliberalism associated with the Washington Consensus (Stiglitz 2002).7 While the World Bank emphasized transparency and accountability of financial institutions and in corporate governance, it also stressed liberalization of the financial market and deregulation of the economy, including in areas such as the environment and consumer protection. The World Bank also asked for a relaxation of legal restrictions on the labor market so as to enhance labor market flexibility. The World Bank demanded the Korean government build a social security system, as social tension increased with the mass layoffs and increasing poverty. As a result of drastic economic restructuring and labor market reform, over 100,000 new cases of unemployment appeared every month in 1998. The World Bank worried about the possibility that rising social discontent would threaten neoliberal reform itself. It demanded that the Korean government strengthen its social safety net. Specifically, it asked Korea to “expand the coverage of the unemployment benefits to firms with fewer than 5 workers as early as possible” (World Bank 1998b: 8). The Korean government accepted, extending employment insurance coverage to firms with fewer than five workers in March 1998. The World Bank specified welfare reform in antipoverty programs such as public assistance and health care. In addition, it demanded a proportionate expansion of the budget for antipoverty programs, with an increase in resources available for the poor.

Globalization and social inequality in South Korea  17 Sustainable neoliberal reform requires a social safety net to reduce social conflicts and political instability as a result of social discontent and social unrest. However, the welfare system the World Bank demanded was a residual, minimal welfare system that was limited in its capacity. It functions as a political safety valve to prevent a massive social challenge to neoliberal reform rather than as a sign of social citizenship that guarantees social welfare rights to the people.

Casualization of work and social polarization The economic crisis transformed the behavior of economic actors in a fundamental way. The developmental state that had controlled the national economy in the past began to rapidly wane in influence as the neoliberal reform proceeded. The government exercised power in the short term, during the first two years of the financial-cum-economic crisis, when almost half of the thirty largest chaebol collapsed. But its discretionary power was curtailed by the success of neoliberal economic reform. The neoliberal reform empowered those chaebol companies that survived because they could exercise more independent power in decisionmaking with regard to investment and employment. With lessened government regulation in the labor market, private companies exercised managerial power to maximize short-term profits. The immediate impact of neoliberal reforms was mass layoffs, including involuntary early retirement and a drastic increase in casual or contingent workers such as part-time workers, dispatched workers, and contract workers. While the proportion of irregular workers in Korea was already much higher than in other OECD countries, the number of non-regular workers increased from 43.8 percent in March 1997 to 53 percent in December 1999.8 During the economic crisis Korean companies aimed to increase numerical flexibility rather than functional flexibility by replacing regular workers with irregular workers and hiring new employees as irregular workers. Thus the proportion of irregular workers was accelerated when trade unions and employer associations agreed on the free discharge of surplus labor in early 1998 as a social pact to manage the financial crisis. An increase in casual workers accompanied the diversification of irregular work categories. As a measure of labor market flexibility, new forms of employees were introduced in all areas of employment in the private sector as well as the public sector. Table 1.2 displays the trends in employee employment status before and after the financial crisis. Most remarkable is that the number of regular workers decreased by almost 1.1 million from 7,282,000 in 1997 to 6,395,000 in 1999. A growth of regular employees occurred after 1999 as the Korean economy recovered from the economic turmoil. However, there was a drastic change in the structure of employment, as the proportion of temporary workers and daily workers continued to grow even after 1999. Irregular workers comprised 51.6 percent of total employees in 1999, for the first time exceeding the proportion of regular workers. And although the proportion of irregular workers decreased to 47.6 percent in 2006, almost half of all employees in Korea were irregular workers.9 The most serious problem for irregular workers has been that of low wages. In 2004 the average wage of irregular workers was between 50 percent and 70

18  Kwang-Yeong Shin Table 1.2  Change of number of employees by type of employment, 1994–2006 (persons, thousands) Type

RE

TW

DW

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

7,225 7,499 7,499 7,282 6,534 6,135 6,395 6,714 6,862 7,269 7,625 7,917 8,204

3,475 3,598 3,907 4,236 4,042 4,255 4,608 4,726 4,886 5,004 5,082 5,056 5,143

1,779 1,802 1,794 1,868 1,720 2,274 2,357 2,218 2,433 2,130 2,188 2,212 2,204

Source: Korea National Statistical Office (2007). Note RE = regular workers; TW = temporary workers; DW = daily workers.

percent of that of regular workers (Kang 2005: 58; Lee 2007: 71). In addition, irregular workers, who frequently experienced job instability, did not get welfare benefits, including unemployment insurance and work injury insurance. Table 1.3 presents the coverage of four major welfare programs for employees by type of employment. Welfare coverage for irregular workers is almost one fourth lower than that of regular workers. While both employers and employees were legally required to pay welfare costs such as pension and health insurance, they did not abide by the legal code.10 They had a shared interest in avoiding welfare contributions. While employers could reduce the total cost of employment of workers by withholding welfare contributions for irregular workers, irregular workers avoided the welfare benefit because their wage was too low to shoulder the welfare burden. Enhancement of labor market flexibility thus resulted in an increase in the number of vulnerable workers without social protection. As a result, the proportion of the working poor measured by the ratio of household income less than 50 percent of the median household income increased continuously, from 8.38 percent in 1994 to 11.86 percent in 2005. When we use the measure of relative poverty used by the OECD, defining a relatively impoverished household as one making below 60 percent of the median household income, the poverty ratio also increases, from 14.46 percent in 1994 to 18.40 percent in 2005 (Kim 2007: 154). The casualization of work is specific to class and gender. Working-class women were heavily hit by the transformation of the labor market. Table 1.4 presents the proportion of irregular employees by class and gender in 2005. Although a

Globalization and social inequality in South Korea  19 Table 1.3  Welfare coverage by employment type Pension Health insurance Unemployment insurance Industrial injury insurance

Regular employment

Irregular employment

74.9 76.5 70.0 69.1

15.2 17.6 19.0 20.5

Source: Korea Labor Institute (2006: 3).

substantial proportion of middle-class workers are irregular employees, the proportion of working class workers who are irregular is much higher. All categories of the working class – white-collar workers, skilled workers and unskilled workers – show almost four times more irregular job holders than middle-class managers, professionals, technicians, and semi-professionals. Moreover, there is a big difference within the middle class between managers and professionals, with 11.5 percent irregular job holders, and technicians and semi-professionals with 20.4 percent. Gender differentials are also conspicuous. Female employees are much more likely to be irregular workers than male employees. Middle-class females are almost twice as likely as middle-class males to work as irregular employees in both managerial-professional jobs and technical and semi-professional jobs. The gender difference within the working class is also striking. The proportion of irregular jobs is highest among female unskilled workers, at 66.3 percent. White-collar female workers are also extensively engaged in irregular work, at 46.7 percent. An increase in high-income jobs was also a new development as the government supported the IT industry and the knowledge economy. The Kim Dae Jung government supported the formation of IT venture companies by providing financial subsidies. As the IT industry developed, lucrative jobs were created, like that of high-tech engineer. As automation and digitization proceeded, low–level managerial and clerical jobs in the banking industry or service industry disappeared. Moreover, as the Korean financial market was integrated into the global financial market, new high-salaried jobs such as fund manager and financial analyst

Table 1.4  Proportion of irregular job holders by class and gender, 2005 Class/Gender

Male

Female

Total

Managerial/professional Technician/semi-professional White-collar workers Skilled workers Unskilled workers

  7.4 14.3 22.7 43.7 34.7

18.5 27.7 46.7 36.3 66.3

11.5 20.4 38.8 42.3 43.8

Note Calculated from Korea Labor Institute (2005).

20  Kwang-Yeong Shin were also created. The polarization of jobs has continued for the last ten years. As many researchers (Castells 2000; Atkinson 2006) argue, the knowledge economy contributed to the U-shape and polarization of the job market, with more jobs at both the high and low end of the wage-scale and fewer jobs in the middle. The rise of digitization and automation following the economic crisis led to job cuts in insurance and banking as well as manufacturing. As Figure 1.1 shows, in Korea in the last decade, the largest job losses occurred in middle-income occupations, and the largest job creation in low-income occupations (Chun 2006; Korea Development Institute 2006). In 2006, legislation to protect irregular employees was passed to protect irregular workers, after a five-year tug of war among labor, capital, and the state. While labor unions demanded more effective protection of irregular workers by restricting the type of jobs for which irregular workers could be hired, employer organizations argued for policy measures to enhance labor market flexibility. The labor law that was passed in the National Assembly in December 2006 and was enacted in June 2007 stated that employers must change the employment status of irregular workers to that of regular workers after two years of employment. However, the new labor law failed to protect vulnerable irregular workers because many employers discharged them before they had completed two years of employment and utilized indirect employment through employment service firms or outsourcing. The number of dispatched workers has proliferated since the enactment of the labor law.

700

Number of Jobs (thousands)

600 500 400 300 200 100 0 –100

1

2

3

4

5

6

7

8

Income Decile

Figure 1.1  Job changes by income decile, 1993–2004

9

10

Globalization and social inequality in South Korea  21 The vulnerability of workers can be empirically measured by several indicators. Table 1.5 presents the average job tenure of workers in major OECD countries from 1992 to 2002. In general, continental European countries display longer job tenure than Anglo-Saxon countries. The average job tenure for US workers was the lowest among Western countries, at 6.6 years in 1997. It was about ten years in continental European countries, except for Denmark, which introduced a new system of flexicurity, involving high labor market flexibility and extensive social security (Wilthagen and Tros 2004; Campbell and Pederson 2007). The difference in average job tenure implies that job change in the neoliberal market economy in America is much more frequent than in the coordinated market economy characterizing much of Europe. Two East Asian countries, Japan and Korea, are an interesting contrast in that Japan still shows the longest average job tenure and Korea the shortest average job tenure among major OECD countries. It implies that Korean employers are much different from Japanese employers in their employment practice. Although some researchers (Nitta 1998; Sato 1997; Sato and Sano 2006; Tatsumichi 2006) argue that the Japanese system of employment underwent significant changes during the recent recession, the Japanese employment system still shows remarkable difference from the Korean one. As the involuntary early retirement of employees became prevalent after the economic crisis in Korea, the difference between the two countries widened. Table 1.5 also shows that labor market flexibility in Korea is much higher than in any other country in the OECD, including the US. We might safely conclude that the Korean labor market is much closer to the American labor market than the Japanese labor market. The economic crisis and subsequent economic reforms aggravated income distribution by intensifying the casualization of work and the polarization of income. Table 1.6 presents the inequality of household income measured by the Gini coefficient and the ratio of the income of the richest 10 percent of the people

Table 1.5  Average job tenure (in years) in major OECD countries in 1988 and 2008 Country\Year

1992

1997

2002

1992–2002

Belgium Denmark Finland Netherlands France Germany Sweden Britain US Japan Korea

11.0   8.8    –   8.9 10.4 10.7    –   8.1   6.7 10.9   4.0 (1990)

11.4   8.5 10.4   9.8 10.9 10.1 11.5   8.0   6.6    –   6.1

11.6   8.4 10.3   9.9 11.3 10.7 10.5   8.1    – 12.2   5.6

  0.6 –0.4    –   1.0   0.9    –    –   0.0    –   1.3   1.6

Sources: for Korea, Ministry of Labor (2004); for all other countries, Auer, Berg, and Coulibaly (2005).

22  Kwang-Yeong Shin Table 1.6  Income inequality in selected countries (household income) Country

Year

Gini coefficient

P90/P10 (decile ratio)

Denmark Slovak Repub. Finland Slovenia Belgium Norway Germany Sweden Netherland Czech Luxemburg Austria Taiwan Rumania France Poland Hungary Spain Canada Swiss Australia Ireland Italy Israel England Korea Estonia US Russia Mexico

1992 1996 2000 1999 1997 2000 2000 2000 1994 1997 2000 1997 1995 1997 1994 1999 1999 1999 1998 1992 1994 1996 2000 1997 1999 2004 2000 2000 2000 1998

0.236 0.241 0.247 0.249 0.250 0.251 0.252 0.252 0.248 0.259 0.260 0.266 0.277 0.277 0.288 0.293 0.295 0.303 0.302 0.307 0.311 0.324 0.333 0.346 0.345 0.352 0.361 0.368 0.434 0.494

2.85 2.88 2.9 3.15 3.19 2.8 3.18 2.96 3.15 3.15 3.24 3.37 3.38 3.38 3.54 3.59 3.57 3.96 4.13 3.62 4.44 4.33 4.48 4.86 4.58 5.93 5.08 5.45 8.37 11.53

Sources: Nolan and Smeeding (2004: 11) and Bureau of Statistics (2004).

to the income of the poorest 10 percent. There are some conspicuous patterns of income inequality across countries. First, income inequality is very high in former state socialist countries that have experienced an economic transition from a planned economy to a market economy, such as Russia and Estonia. The Gini coefficient was 0.434 for Russia and 0.361 for Estonia, respectively, in 2000. Second, Scandinavian countries showed much lower levels of income inequality than any other countries in Europe. The Gini coefficient of Denmark was 0.236 in 1992; and Finland, Norway, and Sweden also showed very low Gini coefficients in 2000 at 0.247, 0.251, and 0.252, respectively.

Globalization and social inequality in South Korea  23 In spite of intermittent interruptions, the rule of social democratic parties in those countries has contributed to the formation of an egalitarian social system. Third, the level of income inequality of continental European countries was relatively low, though it was slightly higher than that of Scandinavian countries. Fourth, Anglo-Saxon countries showed a very high level of income inequality. The US showed the highest income inequality among advanced industrial countries with 0.368 in 2000. The UK also displayed a high level of income inequality with a Gini coefficient of 0.352. Both countries adopted a neoliberal economic policy in the early 1980s. Income inequality in South Korea was higher, at 5.93, than that of the UK, and even than that of the US. The Gini coefficient in Korea had been declining in the 1980s and early 90s, from 0.336 in 1988 to 0.295 in 1996 (Bureau of Statistics 2004: 229). The neoliberal reform after the financial crisis drastically reversed this trend of declining inequality. Other estimates of income inequality show similar trends, though the level of income inequality sometimes differs from government statistics. For example, Shin and Shin (2007: 26) report that the Gini coefficient increased from 0.4053 in 1997 to 0.4352 in 2003. The social polarization index developed by Esteban and Ray (1994) also shows that polarization intensified between 1997 and 2003.11 Table 1.7 presents the trend of the poverty rate from 1997 to 2004. Three different measures were used. The poverty line set by the government was used to measure the poverty rate. Table 1.7 shows a sharp increase in households below the poverty line right after the financial crisis in 1997. It increased from 3.9 percent to 9.4 percent between 1997 and 1999, decreased to 5.2 percent in 2002 and increased again to 6.0 percent in 2004. The usual OECD poverty indicator is the ratio of people who earn less than 60 percent of the median income. When we apply the OECD measure, the poverty ratio increased from 15.7 percent in 1997 to 18.0 percent in 2004. Another measure of poverty, the ratio of people who earn less than 50 percent of median income, also shows an increase from 9.1 percent in 1997 to 11.7 percent in 2004. All three indicators of poverty present a sharp increase in the poverty ratio after the financial crisis. While the unemployment rate returned to normal levels following the crisis, poverty has become more prevalent in Korea. Table 1.7  Poverty ratio, growth rate and unemployment rate, 1997–2004 Below the poverty line Below 50% median income Below 60% median income GDP growth rate Unemployment Source: Kim and Park (2005).

1997

1998

1999

2000

2001

2002

2003

2004

3.9 9.1

8.2 10.7

9.4 10.6

7.6 10.0

6.5 9.8

5.2 9.7

6.1 10.8

6.0 11.7

15.7

17.0

16.9

16.4

16.5

16.6

16.8

18.0

4.7 2.6

−6.9 7.0

9.5 6.3

8.5 4.1

3.8 3.8

7.0 3.1

3.10 3.4

4.6 3.5

24  Kwang-Yeong Shin

Conclusion The Korean experience of neoliberal globalization was unique in that globalization and democratization took place at the same time. The opposition party that won the presidential election in 1997 assumed power two months after the financial crisis hit in December 1997. The IMF and the World Bank provided not only rescue loans but policy packages to reform the Korean economy, which the new democratic government followed as suggested. The principle of the economic reform was neoliberalism, in the form of the Washington Consensus, the common policy orientation of the IMF, the World Bank, and the US Department of the Treasury. The success of neoliberal economic reform significantly curtailed the power of the government as the state retreated from the economic area through deregulation, liberalization, and privatization. While the reform contributed to the formation of the new relationship between the state and capital, it restricted the role of the state in redistribution and social welfare. Although the IMF and the World Bank gave impetus to the expansion of welfare programs in Korea, they did not want to develop a full-fledged welfare state but a minimal and residual welfare program to reduce the discontent of the socially excluded. Ten years of neoliberal economic reforms drastically changed the structure of the labor market, with a thorough diversification of jobs and casualization of work. The government aimed at enhancing labor market flexibility by the deregulation of employment relations. There has been a rapid increase in contingent workers, as Korean companies rely on numerical flexibility to reduce labor costs. Contingent workers who are experiencing low wages and job instability comprise almost half of total employees, the highest rate among OECD countries. The neoliberal economic reforms have also generated social polarization. A rapid increase in economic inequality and an expansion of poverty have been observed for the last ten years. It would be impossible to reverse the trend without restructuring the labor market and developing a new welfare system. The advent of the knowledge economy aggressively pursued by the Kim Dae Jung government also contributed to increasing economic inequality by reducing middleincome jobs and occupations. Thus, the polarization of employment opportunities aggravated income distribution among wage earners. Neither the Kim Dae Jung government nor the Roh Moo Hyun government attempted to pursue alternative policies and programs to the authoritarian and neoliberal economic models. Rather they followed the path of the new Korean economy paved by the IMF and the World Bank. Although the democratic government succeeded in democratizing the political arena, it failed to coordinate the market economy to protect the basic livelihood of the people and to build social citizenship. The two democratic governments betrayed the hopes and expectations of voters, who expected the new government to promote political democracy as well as economic and social security. Although the Kim Dae Jung government did not have many policy options as a result of the financial crisis, it did not try to negotiate the nature of the economic reform with the IMF and the World Bank. Two democratic governments pursued neoliberal policies even after the Korean government officially announced the complete repayment

Globalization and social inequality in South Korea  25 of the rescue fund to the IMF and the World Bank in December 2001. Ironically, market despotism has replaced state despotism as a result of the neoliberal reform. The Korean experience of neoliberal globalization reveals that political democratization is shaky without economic reform that guarantees economic prosperity and social security for the masses. Democratic consolidation is not only a political issue but an economic issue in the sense that a new democracy requires economic bases that contribute to reinforcing the loyalty of the pro-democracy voters. Voters who supported the progressive democratic party in 2002 have been disappointed by the democratic government and some of them have shifted their support to the conservative party, with its authoritarian legacy. The Korean experience also shows that unbridled neoliberal globalization might endanger a new democracy when the rule of the people is replaced by the rule of national or transnational capital. We need a new global democracy or fair globalization in order to promote political democracy and economic responsibility of national governments and international financial institutions. As many (see, among others, Patomäki 2006; Stiglitz 2006) have argued, the democratic deficit of the international institutions should be remedied so as to strengthen new democracies and to democratize globalization itself.

Notes This is a revised and updated version of a paper that appeared in the Journal of Ritsumeikan Social Sciences and Humanities 1: 63–83 (2009). 1 The concepts of “soft budget constraint” and “hard budget constraint” were introduced by Janos Kornai to explain the economic behavior of firms in socialist economies in Eastern Europe. For a more detailed discussion, see Robinson and Torvic (2006). 2 The Korean government prepared for opening the domestic market by gradually lowering the import tariff from 11.5 percent in 1989, to 9.9 percent in 1990, to 6.2 percent in 1993. It also provided a schedule for opening the service sector to reduce trade frictions (Seoul Newspaper 1990). 3 Kim was using the phrase to mobilize mass support for the new government, rather than using it as a scientific concept to understand social change at the global level. 4 The debt ratio of all Korean firms was 286.8 percent in 1995. It was 87.2 percent for Taiwan, 32.3 percent for Japan and 37.5 percent for the US (Korea Herald 1997). 5 Chaebol included companies in many different industries. For example, Hyundai had a construction company, an auto manufacturing company, an insurance company, an electronics company, a shipbuilding company, and department stores. Samsung also had similar types of companies. See Cho (1991) and Kim (2005). 6 Standard & Poors lowered the credit ratings of major Korean banks because large-scale Korean conglomerates were financially troubled (Korea Times 1997b). 7 The meaning of the Washington Consensus varies according to the context of discussion. I use the term in a minimalist way to describe a policy prescription that contains key elements of the Washington Consensus: fiscal conservatism, deregulation of the market, and privatization of the public sector. For more detailed exploration, see Stiglitz (2006: 16–17). 8 There are a variety of terms to indicate irregular workers: non-standard workers, atypical employment, contingent workers, and precarious workers. The term “irregular workers” refers to workers who are not employed as full-time employees with a secure employment contract.

26  Kwang-Yeong Shin   9 Based on the Economically Active Population Survey (EAPS), the National Statistical Office has reported the statistics for irregular workers since 2002. It showed that the proportion of irregular workers increased by 3.6 percent from 4.603 million in 2003 to 5.703 million in 2007 (Korea National Statistical Office 2007). 10 The rate of contribution of each employee is 4.5 percent of total earnings. Employers should contribute the same amount. 11 The change in the polarization index varies from 68 percent to 310 percent, differing according to the assumption made about polarization sensitivity. See Esteban and Ray (1994).

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Globalization and social inequality in South Korea  27 Johnson, C. (1982) MITI and the Japanese Miracle: The Growth of Industrial Policy 1925– 1975. Stanford: Stanford University Press. Kang, S.B. (2005) “The Gap between Regular Workers and Irregular Workers in Working Conditions,” Labor Review 12: 56–62. Kim, A.N. (2007) “Characteristics and Determinants of the Working Poor,” Social Welfare Policy 29, no. 4: 145–68. Kim, J. and Park, N.H. (2005) Evaluation of the Validity of the Korean Model of EITC, Institute of Health and Welfare, Policy Discussion Paper. Seoul: Institute of Health and Welfare. Kim, J.B. (2005) The Structure of Ownership of Chaebol (Chaebolui Soyukucho). Seoul: Nanam. Korea Development Institute (ed.) (2006) Socio-Economic Policies for Overcoming Polarization and Social Integration (Yangkeughwa wa sahoitonghapeulouihan sahoikyungje jungchack), KDI Research Report, August 13. Seoul: KDI. Korea Herald (1997) “Average Debt Ratio of Top 30 Groups Jumps to 396.7 Percent,” May 12. Korea Labor Institute (2005) Korea Labor Income Panel Study. Seoul: KLI. Korea National Statistical Office (2007) Economically Active Population Survey (Kyengjehwandonginguchosa) in October 2007, November 16. Seoul: National Statistical Office. Korea Times (1995a) “OECD Points Out Entry Barrier to Seoul’s Insurance Market,” November 19. —— (1995b) “AmCham to Press for Opening of Korea’s Insurance,” July 20. —— (1996) “Corporations Beset with Soaring Financial Burdens Despite Interest Rate Cut,” November 16. —— (1997a) “European Agency Positive to Korea’s Economy,” February 6. —— (1997b) “S&P Credit Ratings of Hanil Bank, KEB, Shinhan,” October 3. Kornai, Janos (1979) “Resource-Constrained Versus Demand-Constrained Systems,” Econometrica 47: 801–19. —— (1980) The Economics of Shortage. Amsterdam: North-Holland. —— (1986) “The Soft Budget Constraint,” Kyklos 39, no. 1: 3–30. Korpi, W. (2008) “Contentious Institutions: An Augmented Rational-Action Choice Analysis of the Origins and Path Dependency of Welfare State Institutions in Western European Countries,” Rationality and Society 13, no. 2: 235–83. Lee, S.K. (2007) “Labor Flexibility and Labor Income Inequality,” in Chun Byung Yoo (ed.), An Economic Analysis of the Polarization in the Labor Market, 56–78. Seoul: Korea Labor Institute. Mahoney, J. (2000) “Path Dependence in Historical Sociology,” Theory and Society 29, no. 4: 507–48. Ministry of Labor (2004) The Basic Survey of Structure of Wages. Seoul: Ministry of Labor. Nitta, M. (1998) “Employment Relations after the Collapse of the Bubble Economy,” in J. Banno (ed.), The Political Economy of Japanese Society, vol. 2, 267–78. Oxford: Oxford University Press. Nolan, B. and Smeeding, T. (2004) Ireland’s Income Distribution in Comparative Perspective, Luxembourg Income Study Working Paper no. 395. Luxemburg: Luxemburg Income Study. Omhae, Kenichi (1990) The End of the Nation State: The Rise of Regional Economies. New York: Simon & Schuster. Patomäki, H. (2006) “Global Justice: A Democratic Approach,” Globalizations 3, no. 2: 99–120.

28  Kwang-Yeong Shin Pierson, P. (2000) “Increasing Returns, Path Dependence, and the Study of Politics,” American Political Science Review 94, no. 2: 252–67. Robinson, J.A. and Torvic, R. (2006) A Political Economy Theory of the Soft Budget Constraint, NBER Working Paper 12133. Cambridge, MA: National Bureau of Economic Research. Sato, H. (1997) “Human Resource Management System in Large Firms: The Case of White-Collar Graduates,” in M. Sako and H. Sato (eds.), Japanese Management and Labour in Transition, 104–30. London: Routledge. Sato, H. and Sano Y. (2006) “Employment Category Diversification and Personal Management Problems,” Japan Labor Review 2, no. 2: 30–55. Schmidt, V. (2002) The Future of European Capitalism. Oxford: Oxford University Press. Seoul Newspaper (1990) “Over-Consumption as a Source of Increase of Import,” March 30. Shin, D.K. and Shin, K.H. (2007) “Characteristics of Income Polarization and SocioEconomic Impact,” in Chun Byung Yoo (ed.), An Economic Analysis of the Polarization in the Labor Market, 9–55. Seoul: Korea Labor Institute. Shin, K.Y. (2004) “The Capitalist Class and Democratization in Korea,” Journal of Political Economy 1, no. 1: 131–75. Stallings, Barbara and Streeck, Wolfgang (1993) Capitalism in Conflict: The United States, Europe and Japan. Madison: University of Wisconsin Press. Stiglitz, J. (2002) Globalization and Its Discontents. New York: Norton. —— (2006) Making Globalization Work. New York: Norton. Tatsumichi, S. (2006) Business Strategy and Human Resource Management in Japanese Companies Today, Japan Institute for Labor Policy and Training Research Report no. 61. Tokyo: Japan Institute for Labor Policy and Training Research. Wade, Robert. (1990) Governing the Market: The Role of the Government in East Asian Development. Princeton: Princeton University Press. World Bank. (1998a) Korea-Structural Adjustment Loan I, March 26. New York: World Bank. —— (1998b) Korea-Structural Adjustment Loan II, October 23. New York: World Bank. —— (1999) World Bank Report 1999. New York: World Bank. —— (2004) World Bank Report 2004. New York: World Bank. Wilthagen, Ton and Tros, F. (2004) “The Concept of ‘Flexicurity’: A New Approach to Regulate Employment and Labor Markets,” in “Flexicurity: Conceptual Issues and Political Implementation,” European Review of Labour and Research 10, no. 2: 166–87.

2 Neoliberalism, the financial crisis, and economic restructuring in Korea Kang-Kook Lee

The Korean economy experienced a sea change in its economic system and growth model after the 1997 Asian financial crisis. Many economists and international organizations such as the IMF argued that structural problems of the old state-led growth model brought about the collapse of the economy. According to them, the cause of the 1997 crisis was excessive and inefficient investment by Korean corporate groups, the chaebol. This was aggravated by the old state-led development model whereby the government continued to support inefficient big businesses. The government quickly accepted this mainstream position and introduced neoliberal economic restructuring and a full opening of the Korean economy, for the purpose of breaking up the old development model. The restructuring program covered extensive areas including the corporate sector, financial sector, and labor markets. In addition, extensive capital account liberalization for foreign investment into Korea was adopted. In spite of economic restructuring, however, the post-crisis Korean economy has not performed well, with lower levels of investment and increasingly unequal levels of income distribution. Though neoliberalism is still predominant in Korea, there is now a growing concern about slow growth, more instability, and higher social inequality in Korea. There is an alternative view of the crisis in Korean and neoliberal restructuring. This perspective emphasizes the problems of neoliberal economic policy and argues that mismanaged steps taken in opening the country’s finances in the early 1990s were a major cause of the crisis. This point of view also argues that neoliberal economic restructuring in Korea overall has been highly problematic. Post-crisis restructuring weakened the growth potential of the economy and worsened social disparity, which brought about a vicious cycle of lower growth and high inequality. This chapter reviews the debates around the Asian financial crisis, and argues that the post-crisis restructuring and financial opening was a failure. It discusses Korea’s post-crisis economic performance and the implications of the new neoliberal development model.

30  Kang-Kook Lee

The 1997 Asian financial crisis and neoliberalism Debates on the crisis in Korea The 1997 Asian financial crisis generated a heated debate about its causes among economists. Mainstream economists stressed problems of the old development model, so-called crony capitalism, related to the corrupt government–business relationship, while heterodox views emphasized carelessness in opening up these economies, the breakup of the developmental state, and problems with the international capital market (Chang 1998; Corsetti, Pesenti, and Roubini 1999; Radelet and Sachs 1998). Leading economists and international organizations argued that the Korean economy had suffered from economic inefficiency in the mid-1990s and that that was the root of the financial crisis. They argued that chaebol, the corporate groups in Korea, pursued excessive investment thanks to their bad governance structures, and that there was much more borrowing than was sensible. In fact, gross private domestic investment in Korea, about 30 percent of GDP in the 1980s, rose up to above 35 percent between 1993 and 1995, peaking at 39 percent in 1996. As a result, economic efficiency in Korea declined significantly, as seen in a drop in profitability and a leap in debt before the Asian financial crisis. Several empirical examinations support the mainstream proposition. Some studies, including Claessens, Djankov, and Xu (2000) and Pomerleano (1998), present international comparisons and argue that Korean firms had relatively low rates of return, but higher debts. Krueger and Yoo (2001) report that investment spending in Korea continued to rise from the mid-1980s despite the decline in the ordinary profit rate. Borensztein and Lee (1999) report that capital allocation in Korea was inefficient for about 25 years because profitability in Korea was negatively affected by the increase in loans. Other studies, including Joh (2003) and Lee, Lee, and Lee (2000), compare chaebol and non-chaebol firms and report that chaebol had relatively lower profitability and higher debts. Hahn (2000), after controlling for several variables, finds that large chaebol firms invested more than independent firms before the crisis. These studies generally indicate deteriorating efficiency in the 1990s, but it is difficult to argue that this was the main cause of the crisis. For example, aggressive investment by the chaebol can be understood in light of their peculiar corporate structures and the export market boom that took place in the mid-1990s. Crotty and Lee (2004) strongly refute the common arguments using an extensive historical and international examination. They argue that the operating profitability of the Korean corporate sector in the mid-1990s was not low compared with earlier periods and with that of other countries. Ordinary profitability was indeed low internationally, but this was because of higher debts on the part of Korean companies as they depended on external finance to make high rates of investment (Wade and Veneroso 1998). Ordinary profitability went down in 1996, and even more so in 1997, principally owing to financial factors such as exchange rate loss. Thus, although the economy became financially vulnerable, there is no strong evidence for economic inefficiency in Korea to the point that it would have caused the collapse of the economy in the mid-1990s.

Neoliberalism, the financial crisis, and economic restructuring in Korea  31 Neoliberalism, mismanaged financial liberalization, and the crisis The more significant cause of the crisis can be found in neoliberal changes to the Korean economy. The early 1990s was a watershed in terms of the financial liberalization and opening of the Korean economy. Economic development and the change in the financial system and political economy in the late 1980s led to the fall of the former development regime and the rise of neoliberalism (Lee, Lee, and Lee 2002). In the financial market, non-bank financial institutions (NBFI), less regulated by the government than regular banks and dominated for the most part by chaebol, grew fast, and the capital market also developed rapidly throughout the 1980s. This significantly weakened government control over the financing of the corporate sector. The chaebol became financially powerful and wanted more freedom in their investment and financing, and requested financial liberalization to utilize cheaper foreign capital. Influenced by a free market ideology that underscored the ineffectiveness of state control, the government then began to retreat from the economy, ending its industrial investment coordination policy in 1990. As a result, neoliberalism emerged in Korea in the early 1990s as a counterattack on old government intervention, despite the fact that government-led development performance to that point had been excellent.1 The most outstanding aspect of neoliberalism in Korea in the early 1990s was extensive financial and capital account liberalization. The liberalization was encouraged by the demands of domestic big businesses as well as external pressure from the US government, reflecting changes in international politics. Several measures for opening the economy were introduced along with the decision to join the OECD. Interestingly, the opening of the capital market for portfolio investment was introduced carefully, and long-term forms of borrowing, such as issuing corporate bonds abroad, were still regulated. This was because the government was concerned about financial instability and the weakening of government macroeconomic management. However, deregulation for short-term foreign borrowing by financial institutions and firms was much more comprehensive (Cho and McCauley 2003). The government abolished the ceiling on foreign currency loans of financial institutions and reduced the required ratio of long-term foreign loans in 1993. In addition, between 1994 and 1996, 24 finance companies were transformed into merchant banks dealing in foreign exchanges. The government naïvely expected that short-term loans would be automatically rolled over, while the private sector wanted the low interest rates of short-term foreign loans. Nevertheless, the financial supervision and monitoring systems were weak in general. This was more problematic for merchant banks because they were under relatively lax regulation (Balino and Ubide 1999). The aftermath of this financial opening was growing vulnerability and finally the collapse of the economy. As a consequence of financial opening, foreign capital inflows rose rapidly, as shown in Table 2.1. Foreign debt surged from some $44 billion in 1992 to more than $120 billion at the end of 1997, most of which was due to the surge of short-term borrowing by financial institutions and firms.

32  Kang-Kook Lee Table 2.1  Foreign debt and net capital inflows into Korea in the 1990s ($ billion)

Total foreign debt   Long term   Short term Short-term debt/foreign reserves1 Net capital inflows (1 + 2 + 3)   1  Net direct investment   2  Net portfolio investment   3  Other net capital inflows Financial institutions borrowing   Long term    Banks    Development institutions    Merchant banks   Short term    Banks    Development institutions    Merchant banks Other debts (trade credit, etc.)

1992

1993

1994

1995

1996

1997

42.8 24.3 18.5 – 6.99 −0.43 5.8 1.62 2.43 1.2 0.9 0.08 0.22 1.23 0.7 0.59 −0.06 2.49

43.9 24.7 19.2 1.05 3.22 −0.75 10.0 −6.05 1.2 0.08 0.15 −0.08 0.01 1.12 0.39 0.56 0.17 −2.66

56.8 26.5 30.4 1.36 10.73 −1.65 6.12 6.26 8.98 1.95 2.18 0.01 −0.24 7.03 5.38 0.78 0.87 4.65

78.4 33.1 45.3 1.54 17.22 −1.78 11.59 7.46 13.40 1.61 2.03 −0.35 −0.07 11.79 8.52 1.56 1.71 8.05

104.7 43.7 61.0 2.07 23.92 −2.34 15.18 11.08 14.15 1.53 2.49 −0.85 −0.11 12.62 7.19 2.24 3.19 10.42

120.8 69.6 51.2 5.77 6.03 −1.95 14.76 −6.79 −14.12 0.72 0.66 −0.01 0.07 −14.84 −10.31 −2.43 −2.10 18.07

Source: Bank of Korea, International Balance of Payments. Note: 1  available foreign reserves base.

This foreign borrowing financed the investment boom which was driven by aggressive investment spending by the chaebol in the early 1990s. It may be an exaggeration to say that the boom was irrational, but the mode of financing was problematic and dangerous at least. For example, the ratio of the foreign debt as part of overall corporate debt rose from 8.6 percent in 1992, to 10.0 percent in 1994, and to 16.4 percent in 1996 as a result of the rapid growth of short-term foreign borrowing by chaebol firms (Hahm and Mishkin 2000: 63). Financial institutions also became fragile, with the term structure and currency mismatch problem worsening. Merchant banks were in the biggest danger since they procured foreign capital mainly in the short term and lent it in the long term, as conduits for finance for chaebol. In 1996, the external shock of the export market collapse dealt a severe blow to the Korean economy. Several chaebol started to go bankrupt in early 1997 and this left the financial sector in acute trouble. As financial institutions struggled to pull back their short-term loans, the crisis spread to the whole economy. Finally, the dangerous structure of foreign debt and the contagion effect of the Asian financial crisis overall exacerbated foreigners’ lack of confidence. When they refused a rollover of short-term foreign loans, the Korean economy plunged into crisis.2 Our examination points out that the mismanaged opening of the Korean economy,

Neoliberalism, the financial crisis, and economic restructuring in Korea  33 associated with the rise of neoliberalism in the early 1990s, was the main cause of the 1997 financial crisis in Korea.

Neoliberal restructuring and financial liberalization after the crisis Economic restructuring after the crisis The Asian financial crisis was a historic moment in terms of the implementation of full-blown neoliberalism in Korea. The Kim Dae Jung government accepted the mainstream view of the problems with the Korean economy and implemented the IMF restructuring program. First, the government introduced a very restrictive macroeconomic policy. This was criticized because the Korean economy was relatively sound in terms of macroeconomic fundamentals, unlike in Latin America, for example (Radelet and Sachs 1998; IMF 2003), and this policy could kill the economy – as happened in early 1998. The government finally gave up its excessively restrictive monetary policy as of mid-1998, and turned to a somewhat Keynesian approach by spending huge amounts of public funds. It also implemented a microeconomic restructuring program, the objective of which was to break up the old development model completely. It was supposed to increase the efficiency of the Korean economy by creating a “flexible” labor market, liberalizing finance and establishing an open market-based financial system, restructuring inefficient chaebol, and fully opening all of Korea’s markets to foreigners. Restructuring labor markets In the middle of the turmoil of the crisis, new capital-friendly labor laws were enacted in February 1998 that legalized the layoff system in cases declared to be of “urgent managerial need,” including mergers and acquisitions. Moreover, temporary help agencies were made legal after July 1998 and temporary workers, who were dispatched to firms for up to two years, were permitted in all occupations (KDI 1999). This flexibilization of the labor market was clearly intended to break the strength of the labor movement, and had been demanded by domestic capital for some time. The IMF also requested that the government immediately repeal the labor laws protecting job security as its agreement with Korea specified. It was natural that this restructuring would significantly raise unemployment, up to some 7 percent in 1998 from less than 3 percent before the crisis, and the incidence of poverty over the next few years. Another result of flexible labor markets was an increase of irregular workers and job insecurity. Even before the crisis, over 40 percent of all workers were in the insecure and poorly treated non-regular or non-permanent category, the highest rate in the OECD. And the share of irregular workers continued to rise, up to 52 percent in 1999, and even higher in 2000 as Korean firms took advantage of new laws by firing many permanent workers and hiring cheaper, temporary workers. The tradition of lifetime employment of key employees was over and workers’ economic insecurity began to rise in this new form of labor market. Labor market reform was clearly good

34  Kang-Kook Lee news for businesses. It is remarkable that Korea’s labor productivity growth in the late 1990s and early 2000s was higher than that of any other country in the world (Bureau of Labour Statistics 2001). Labor productivity had been higher than the growth of real wages after the early 1990s, and the gap widened in 1998, resulting in a decline in labor costs. In early 1998, faced with mass unemployment and worsening poverty, the government announced that it would install a better safety net in the form of unemployment insurance and retraining programs. Social spending increased substantially after the crisis, with total public spending on welfare programs rising from 3.7 trillion won in 1996 to 5.6 trillion won in 2000. But the level of income protection for most workers is still inadequate and Korea’s welfare spending is one of the lowest in the OECD. Restructuring the financial sector The government implemented financial restructuring to drive weak financial institutions out of the market, clean up nonperforming loans, recapitalize viable financial institutions, apply stricter prudential regulation, and open financial markets to foreign capital. Because almost all institutions involved in corporate lending effectively went bankrupt in 1998, the government was required to inject huge amounts of public money into the banking system. Public funds spent on financial restructuring through mid-2001 totaled over 150 trillion won, about 30 percent of GDP. This huge infusion of public capital enabled the government to control most of the important Korean banks and to lead corporate restructuring. About half of the financial institutions were shut down through bankruptcy or mergers, including 15 out of 33 commercial banks and 24 out of 30 merchant banks. After 2001, bank mergers were promoted and foreign capital became active in purchasing domestic banks. In addition, strict regulations were implemented in the midst of the economic turmoil. Bank for International Settlements (BIS) capital adequacy standards, which stipulated that banks’ capital must be larger than 8 percent of the value of their loans, were introduced in1998. The result of the application of these standards when most financial institutions were already insolvent was grave. In fact, financial restructuring together with restrictive macroeconomic policy brought about a severe credit crunch and a collapse of the economy (Crotty and Lee 2001). The dramatic drop in credit to the corporate sector caused firms to cut investment, wages, and employment, thereby aggravating the deficiency in aggregate demand, which again increased nonperforming loans and decreased bank lending further. For example, the total funds made available to industrial firms dropped from 118 trillion won in 1997 to just 28 trillion won in 1998, a major cause of the collapse of investment spending, though it partly reflected the decline of investment itself. Even after the rapid economic recovery in 2002, corporate access to finance did not fully recover. The amount of funds available was less in 2005 than in 1997 mainly because of the serious decline in external finance from financial institutions. Financial restructuring caused the enfeeblement of the role of financial intermediation for the corporate sector, with the share of corporate lending out of all loans decreasing from 65 percent in 1997 to 43.5 percent in 2004, which affected investment by small and medium-sized companies in particular.

Neoliberalism, the financial crisis, and economic restructuring in Korea  35 Commercial banks began to recover their profitability from 2001, partly because the massive infusion of public funds had finally reduced the stock of nonperforming loans. More importantly, commercial banks in Korea had rapidly shifted out of shaky industrial loans into high-margin household loans, driven by foreign banks. Household debt had been rising rapidly since 1999, when the government introduced financial deregulation for consumer credit. The rate of growth of household debt had begun to rise from 2000, and the rate of the default rate on credit cards became very high in 2003, leading to an economic recession. As a result, concerns about the danger of an outbreak of financial distress in the household sector emerged. Restructuring nonfinancial corporations In 1998, the Kim government announced five principles of corporate restructuring including ����������������������������������������������������������������� a drastic and immediate reduction of corporate leverage���������� ,��������� improvement of transparency, the end of cross-debt guarantees by conglomerate firms, chaebol concentration on core businesses, and greater managerial accountability to minority shareholders. Reform for chaebol in the name of the market economy was popular because Koreans regarded them as being responsible for the crisis. Government policy succeeded in reducing corporate debts. The highly leveraged top 30 chaebol reduced their debt ratio from about 500 percent in late 1997 to less than 200 percent in 2000, following government guidelines, though a significant part of the decline came about because of a rise in capital. The trend of decreasing debts continued, and the debt ratio for the 30 largest chaebol went down to only 118 percent in 2005 along with the decline of investment and loans to the corporate sector. The drive to raise corporate profitability appears to have been partly successful. Though profitability remained low for several years, ordinary profitability in the manufacturing sector started to rise after 2002. Ordinary profit as a percentage of sales in manufacturing fell to minus 1.8 percent in 1998 but recovered in 2002 to 4.7 percent, and then 7.8 percent in 2004, thanks to the decrease of the debt ratio and lower interest rates. Net profit as a percentage of sales for the top 30 chaebol, traditionally measuring 2–4 percent, collapsed to minus 4.5 per cent in 1998 and then recovered after 2002. The worst side effect of corporate restructuring was the decline in capital accumulation, which may lead to a long-term fall in Korea’s growth prospects. Real fixed investment in Korea was 23 percent lower in 1998 and 6 percent lower in 2000 than the level in 1997, and did not recover to 1997 levels until 2003. Weak profit flows, the cutoff of credit due to financial restructuring, and the fall of the debt ratio were important factors in this. Even with the increase in profitability, firms’ investment did not respond much, especially in small and medium-sized companies. Neoliberal corporate and financial reform made corporate management so conservative that the dynamics of the high-debt model were lost (Jang 2008). The fall of investment was aggravated by the decline of domestic demand as a result of lower income and the lack of new investment opportunity (Lee 2007; Kramer 2006). Meanwhile, it is certain that chaebol reform weakened their power. As a result of restructuring, about one third of the 30 largest chaebol went bankrupt,

36  Kang-Kook Lee including Daewoo’s bankruptcy and Hyundai’s divestiture. However, owner families continue to control whole groups despite holding only 2–4 percent of ownership (based on interlocking share ownership) in most chaebol in spite of several measures for corporate governance reform. Chaebol reform, particularly corporate governance reform, has lost steam since late 2001. Economic opening after the crisis Financial opening and capital inflows The opening of the financial markets was another pillar of neoliberal economic restructuring. It was believed that more financial liberalization and foreign capital inflows would be helpful to the Korean economy by accelerating post-crisis restructuring and encouraging economic efficiency. Thus, the Korean government promoted financial opening – even though the crisis was due to haphazard financial liberalization – and repealed the famous capital controls regime of the past (Lee 2004). The government disposed of the remaining restrictions on capital inflows in the capital market after the crisis. In May 1998 the government abolished limits on the percentage of corporate stock that foreigners could own. Regulations on foreign investment in most corporate bonds, in the forward market, and in commercial papers were eased or abolished. The government permitted hostile mergers and acquisitions (M&As) by foreign investors after 1998 and made a concerted effort to sell financial institutions to foreign buyers (Ministry of Finance and Economy 1999: 137–51). In April 1999, with the first phase of capital market opening plans, the government permitted nonresidents to hold long-term deposits in domestic financial institutions, further deregulated firms’ short-term foreign borrowing, and permitted all Koreans to engage in foreign currency transactions. In 2001, the second phase of capital market opening introduced further opening measures. In particular, the Korean government changed its position, becoming very enthusiastic about attracting foreign direct investment (FDI). The Roh government announced the “Northeast Asian Business Hub” plan, with several incentives for foreign investors in 2003, and finally signed the Free Trade Agreement with the US in 2007 in an attempt to promote inward FDI. These opening measures encouraged foreign portfolio investment and FDI into Korea, to the extent of an astounding total of $62 billion from 1998 through 2000. From the late 1980s through 1994, inward FDI averaged only about $1 billion a year. It rose to $3 billion in 1996 and $8 billion in 1997, and rose to a cumulative $31 billion in 1999 and 2000, as shown in Table 2.2. FDI as a percentage of total fixed investment had been no more than 1 percent until the mid 1990s, but it jumped to 13 percent in 1999 and 2000. However, the overwhelming majority of FDI involved foreign acquisitions of domestic firms, rather than new or “greenfield” investment, and there is no evidence that FDI helped the economy to recover (Crotty and Lee 2001). Meanwhile, net portfolio inflows, which varied between $1 billion and $5 billion annually from 1992 through 1999, leapt to more than $11 billion in 2000. Foreign borrowing by financial institutions recorded a very rapid rise in 2006, while foreign portfolio inflows declined fast after 2005.3

Neoliberalism, the financial crisis, and economic restructuring in Korea  37 Table 2.2  Foreign capital flows in Korea after the crisis ($ billion) 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 FDI inflows Portfolio   Inflows   Outflows   Net inflows

3.2

6.9

8.8

15.5

15.2

11.3

9.1

6.5

12.6 8.0 4.6

13.2 12.1 1.1

16.5 11.7 4.8

41.7 36.2 5.5

60.1 48.8 11.3

43.9 36.4 7.5

65.4 66.2 −0.8

81.6 68.1 13.5

12.8

11.5

116.0 148.1 106.7 150.5 9.3 −2.4

Source: Bank of Korea and Ministry of Knowledge Economy, Foreign Investment Statistics (http:// www1.mke.go.kr/info/foreigner/sumTotal.jsp).

Korean enterprises could meet the government demand to cut down their debts only through the extensive sale of real assets to foreigners. This forced Korean assets to be offered in a kind of fire sale, to which the collapse of the won also contributed. In consequence, the share of foreign capital in the Korean stock market and foreign influence in the Korean economy rose rapidly. The percentage of Korean stock market capitalization owned by foreigners rose from 14.6 percent in late 1997, jumped to 36.6 percent in late 2001, and then to 42 percent in late 2004. Foreigners have gained strong influence over major Korean industries, including semiconductors, automobiles, electronics, telecommunications, petrochemicals, and finance. In mid-2001, foreigners owned 56 percent of the listed shares in Samsung Electronics, 63 percent of POSCO, and 57 percent of the listed stock of Hyundai Motors. Effects of foreign capital and future concerns Huge foreign capital investment must have encouraged the initial recovery of the economy. Korea ran both a current and capital account surplus after 1998, and foreign reserves skyrocketed from only $20.4 billion in 1997 to $96.2 billion in 2000, to $155.4 billion in 2003, and to a record high of $239 billion in 2006. But holding such large foreign reserves is not without cost. More than 60 percent of all foreign reserves are known to be dollar-denominated assets, and the share of the US treasury bonds is very high. The high level of foreign reserves may incur a cost estimated at more than 1 percent of GDP and partly aggravate the current global imbalances problem (Rodrik 2006). The government and many economists expected that opening up the economy and letting in foreign capital would increase efficiency and productivity through spillover effects in relation to the transfer of better technology and management skills. However, it is not certain that the expected benefit has been realized, and the all-out financial opening and liberalization has raised serious concerns. First, skyrocketing capital inflows have reinforced foreign control of the Korean economy. The evidence for the transfer of advanced technology by foreign firms is weak, but foreigners appear to have exerted a depressing effect on corporate investment by requesting higher dividends and controlling investment decision.

38  Kang-Kook Lee Chaebol firms have changed their perspective on shareholders and have begun to care about protecting their management rights. They are now paying more dividends to foreigners, making more stock buybacks and holding more cash.4 The detrimental effects of foreign control are most salient in the financial sector. Many financial institutions were first sold to foreign private equity funds including Newbridge Capital and Lone Star, transactions which have included very lucrative conditions for these companies, angering Koreans. The share of foreign ownership of the eight large commercial banks rose from 12 percent in 1998 to 39 percent in 2003 and 64 percent in 2004. Foreigners now own more than half the shares of seven of the eight large banks, totally dominating commercial banking. There is no evidence that foreign-controlled financial institutions have been more efficient or are better managed than domestic-owned institutions (Bank of Korea 2003). However, foreign-owned banks were relatively more reluctant to make corporate loans and more enthusiastic about consumer lending than domestic banks, thereby significantly contributing to the investment decline. Foreign banks also slashed loans to small and medium-sized enterprises. In addition, the liberalization of international capital movements makes it more difficult for the government to manage the economy, a similar situation to that of other emerging markets (Moharty and Turner 2006). The large external surplus has caused a pressure to increase the monetary stock. The government has struggled to sweep up foreign currency by issuing and selling a huge amount of Money Stabilization Bonds (MSB) to financial institutions, which has increased the interest burden. More importantly, further opening of the financial sector may increase instability in capital markets in relation to abrupt changes of short-term international capital flows. Unstable foreign portfolio capital flows, called “hot money,” may be a source of serious instability in the future, as short-term foreign borrowing was a cause of the 1997 crisis. The government had much more trouble in stabilizing the national economy, faced with financial globalization and potential currency attacks by hedge funds. In sum, post-crisis financial opening and rapid foreign capital inflows brought concerns about economic instability, strong foreign control of the economy, and repression of investment (Bank of Korea 2005b).

Worsening growth and distribution in the neoliberal development model Disappointing performances of neoliberal restructuring The economic performance after the crisis and subsequent restructuring in Korea is indeed disappointing. As Table 2.3 demonstrates, the Korean economy collapsed in 1998 as a result of the shock of the crisis, an excessively restrictive macroeconomic policy, and economic restructuring. The economy rebounded in 1999 and 2000, along with an easing of macroeconomic policy, an injection of public funds, a robust growth in consumption, and a record trade surplus. The government strongly encouraged consumer spending and caused a real-estate boom by deregulating consumer lending and providing tax incentives for consumer credit since

Neoliberalism, the financial crisis, and economic restructuring in Korea  39 1999. Thus, the share of household debt in GDP – about 40 percent in the mid1990s – rose to 74 percent in 2003. It was hardly sustainable, however, and the economy finally fell into a slump again in 2003 as the bubble partly burst, although strong export growth somehow supported an uptick in overall economic growth. The most important problem of the Korean economy is serious investment stagnation. Gross investment was above 35 percent of GDP before the crisis, but has been below 30 percent since then, and investment has not recovered even with the recovery of profitability since 2004. There are several factors constraining investment, including the adjustment of excessive investment before the crisis and the change of industrial structure (Kramer 2006). However, the shock of the crisis and the neoliberal change of the economy were certainly behind falling investment (Bank of Korea 2006; Hong, Lee, and Lee 2007). The corporate sector became very conservative and the financial sector turned down corporate lending, especially to deteriorating small and medium-sized companies. The increasing influence of foreigners in the Korean economy also checked the fast increase of investment. Moreover, the decline of domestic demand and income because of growing poverty and inequality has worsened the investment decline. While domestic demand has been sluggish, the role of exports became larger, with the trade dependency ratio rising from 65 percent in 1997 to 84 percent in 2004. But the link between exports and domestic investment is weak because most IT industry firms import capital goods (Bank of Korea 2005a). Neoliberalism also exacerbated the fragmentation of Korea’s economy and society (Shin 2008). The large chaebol firms in the export sector are doing relatively well, while small and medium-sized firms in the domestic sector have been suffering. Social fragmentation has worsened, owing to growing poverty and inequality. This

Table 2.3  Economic performance in Korea after the 1997 crisis (percentages) 1993–71 1998 1999 2000 2001 2002 2003 2004 2005 2006 Real GDP growth Consumption growth Fixed investment growth Investment rate Saving rate Net export/GDP Ordinary profitability Debt ratio2

7.1 6.5

−6.7 −10.6

9.5 9.7

8.5 7.1

3.8 4.9

7.0 7.6

3.1 −0.3

4.7 0.4

4.2 3.9

5.0 4.5

12.3

−22.9

8.3

12.2

−0.2

6.6

4.0

2.19

2.4

3.2

37.1 36.1 −1.1 2.2

25.2 37.5 12.9 −1.8

29.3 35.3 6.7 1.7

31.1 33.7 3.2 1.3

29.4 31.7 2.3 0.4

29.1 31.3 1.4 4.7

30.1 32.8 2.4 4.7

30.4 34.9 4.3 7.8

319.5

30.2 29.9 32.9 31.4 2.4 1.1 6.5 5.7

303.0 214.7 210.6 182.2 135.4 123.4 104.2 100.9 98.9

Sources: Bank of Korea and Ministry of Strategy and Finance, Main Economic Indicators (http://www. mosf.go.kr/_lib/lib01/lib01a.jsp). Notes 1  average value for 1993–7; 2  profitability and debt ratio for the manufacturing sector.

40  Kang-Kook Lee has mainly been because of a rise in the proportion of irregular workers with poor working conditions and low wages. Hence, the fruit of growth itself appears to go to firms as profit, with less and less going to workers. The growth rate of real disposable income of Korean households decreased from about 6 percent in the 1990s to 0.8 percent during the 2000–4 period, while that of the corporate sector increased from 4.8 percent to 58.3 percent. Indices of inequality increased substantially in the aftermath of the crisis. The Gini coefficient for urban workers’ households is about 10 percent higher now than in 1997, while the ratio of the income of the top 20 percent of working families to the bottom 20 percent rose from 4.5 in 1997 to 5.4 in 2006 (see Figure 2.1 for both measures).5 Most studies report that absolute and relative poverty rates have more than doubled since the crisis (KIHASA 2007). Government policy has done little to ameliorate rising inequality (Yoo 2003), as social welfare spending is just 10 percent of total government spending, much lower than that in other OECD countries. Considering the detrimental effect of inequality on long-term economic growth, Koreans have to be concerned about the future.6 Neoliberal Transformation of the Development Model From a historical perspective, a deeper implication of post-crisis restructuring was the fundamental transformation of the development model. In the past, Korea was a paragon of the East Asian miracle, with both high growth and relatively equal distribution based on the developmental state. The Korean government had strong, capable officials and relative autonomy from social interest groups (Evans 1995; Amsden 1989). There was also a close government–business relationship with cooperation and discipline that mitigated information problems and limited unproductive rent-seeking. Economic development in Korea was guided by a development-oriented government that intervened strongly in the economy, represented by selective promotion of industry, credit allocation programs, various measures for trade protection, and capital controls (Chang 1994; Lee 2004). This development model was based on a unique combination of the market and state mechanism and functioned effectively for some 30 years. This developmental regime began to fall in the late 1980s as domestic business groups wanted more deregulation, and the government, influenced by strengthening neoliberal ideology, gave in to the demand for liberalization. The democratization after 1987 also intensified the retreat of the state from the economy because government intervention was thought by many to be another aspect of dictatorship. Financial opening and liberalization in the early 1990s reflected this change. The state then began to be pressured by domestic capital from inside, international capital from outside, and anti-government opposition and ideology (Lee 2007). Post-crisis restructuring and opening were a victory for global neoliberalism in Korea, and its active acceptance by the government reflected changes in the political economy. International capital and organizations became dominant after the crisis, and the government followed the propositions of the IMF. The astounding shock of the Asian financial crisis strengthened neoliberalism in Korea, since most economists and government officials quickly accepted the mainstream perspective. Alternative voices were very limited. In fact, even many progressive economists partly welcomed

Neoliberalism, the financial crisis, and economic restructuring in Korea  41 Income distribution in Korea (urban region)

Top 20% / bottom 20% (wage earners) Top 10% / bottom 10% (wage earners) Top 20% / bottom 20% (all)

16

Top 10% / bottom 10% (all)

14 12 10 8 6 4 2 0 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 Gini coefficient (urban wage earners) 0.33 0.32 0.31 0.3 0.29 0.28 0.27 0.26 1989

1991

1993

1995

1997

1999

2001

2003

2005

Figure 2.1  Income distribution in Korea (National Statistics Office, Korea Statistical Information Service (http://www.kiosk.kr)).

the IMF-imposed economic reform because they had always underscored the problems of the old development model and urged reform of the chaebol.7 The result of neoliberal restructuring and economic opening was the establishment of a neoliberal development model with less of a role for the state in economic management, a stronger influence of foreign capital, and the exclusion of labor. But as we have seen, it is unlikely that this new development model will bring about fast growth and social equity in Korea. Investment, especially that of small and medium-sized companies, has been in stagnation, while income inequality and

42  Kang-Kook Lee poverty largely worsened alongside labor market liberalization. Further opening and rising foreign capital flows may aggravate financial instability and constrain national economic management. The foreign-dependent growth strategy, intensified by the recent Korean–US Free Trade Agreement, may be dangerous in the current situation of global imbalances. This path – the reverse of the development model from the East Asian miracle in the past – might exacerbate the vicious cycle of low growth and high inequality together with economic instability (Lee 2007). Hence we should call for a fundamental reconsideration of the development model and alternative reforms. The Korean government should choose policy options including the promotion of domestic consumption by means of more equal income redistribution, a reformulation and reregulation of the financial system for public purposes, a more systematic industrial policy including education reform, and a regulation of speculative short-term foreign capital flows. Externally, Korea should take a catalytic role in the development of financial cooperation in East Asia, overcoming current neoliberal globalization. It could provide financial stability, promote investment within the region utilizing huge foreign reserves, and help countries to introduce alternative reforms (Park and Yang 2006). Koreans undoubtedly need a great transformation in thinking and political efforts in order to attempt this egalitarian development model managed by a democratic state.

Conclusions This chapter has examined the historical experience of the Korean economy, including the 1997 Asian financial crisis and post-crisis restructuring and opening of the economy. The common argument is that Korea suffered from the crisis because of serious economic inefficiency as a result of the problematic state-led development model. The Korean government accepted this argument and introduced neoliberal economic restructuring and opening in an attempt to repeal the relics of the old model and establish an allegedly more efficient model similar to the Anglo-Saxon one. However, the mainstream interpretations of the Korean crisis and economic reform following the crisis are deeply flawed. The 1997 financial crisis was mainly due to mismanaged capital account liberalization, reflecting the fall of the developmental state and the rise of neoliberal economic ideology in the early 1990s. It is also hard to assert that the post-crisis performance of the Korean economy was successful. Along with neoliberal economic restructuring and opening, investment declined and inequality worsened significantly, so that concerns about the future are growing. In the longer term, there is the threat of a vicious cycle of higher inequality and poverty, more economic instability, and lower economic growth. The prospects for the new neoliberal development model in Korea are not bright. Even if there is some economic growth, its benefits will hardly spread to the whole economy. Social conflicts caused by higher disparity and instability will likely become more serious, and neoliberalism in Korea may face acute resistance from a majority of people. In Korea, it is time for second thoughts on the neoliberal development model and for deliberation on an alternative model for egalitarian economic growth managed by a more democratic state.

Neoliberalism, the financial crisis, and economic restructuring in Korea  43

Notes 1 Neoliberalism became widespread internationally after the 1980s, when structural adjustment was introduced by international organizations in response to financial crises. Its policy measures include liberalization and openness in trade and finance, and deregulation and privatization, all summarized in the term “Washington Consensus.” However, the performance of neoliberalism in economic development is never satisfactory and there is no evidence that the neoliberal model is a superior one in its promotion (Chang 2007). 2 In 1997, the rollover rate of commercial banks fell from 106.3 percent in June to 85.8 percent in September, 58.8 percent in November and to a mere 32.2 percent in December. Thus, capital flight from Korea occurred then as a form of the refusal of the rollover of short-term foreign loans. 3 In 2006, while the capital account balance still had a surplus of $18.6 billion, mainly thanks to the huge inflows of other capital accounts, as large as $47.7 billion, including foreign short-term borrowing, the direct investment balance changed to a deficit of $0.3 billion. Most importantly, the portfolio balance recorded the historically large deficit of $22.5 billion. 4 The share of dividends to foreigners in GDP jumped from 0.15 percent in 1998 to 0.55 percent in 2003. This reflected the increase of both foreign ownership and of dividends. 5 The Gini coefficient is the most popular indicator for income distribution. It rises as income distribution worsens. Its maximum is 1 and minimum is 0. 6 Economists recently argued that serious inequality in income or wealth can do harm to economic growth overall by aggravating political instability, repressing human capital investment and blocking institutional developments that are good for growth. See World Bank (2005). 7 Most people believed the “market economy” to be pro-democracy because government intervention was regarded as inefficient and corrupt, associated with the original sin of autocracy. The Kim government agenda was also “Democracy and Market Economy.”

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Neoliberalism, the financial crisis, and economic restructuring in Korea  45 —— (2007) “Growth, Distribution, and Globalization in Korea: From Egalitarian Growth to Low Growth and Unequal Distribution,” paper presented at the Ritsumeikan conference on the Changing Global Economy and the Korean Economy in Transition, Kyoto, Japan (Japanese). Moharty, M.S. and Turner, P. (2006) “Foreign Exchange Reserve Accumulation in Emerging Markets: What Are the Domestic Implications?” BIS Quarterly Review, September: 39–52. Park, Y.C. and Yang, D.Y. (2006) Prospects for Regional Financial and Monetary Integration in East Asia. Seoul: Korea Institute for International Economic Policy. Pomerleano, M. (1998) “The East Asia Crisis and Corporate Finances: The Untold Micro Story,” World Bank Policy Research Working Paper no. 1990. Washington, D.C.: World Bank. Radelet, S. and Sachs, J. (1998) “The East Asian Financial Crisis: Diagnosis, Remedies, Prospects,” Brookings Papers on Economic Activity 1: 1–74. Rodrik, D. (2006) “The Social Cost of Foreign Exchange Reserves,” National Bureau of Economic Research Working Paper 11952. Cambridge, MA: National Bureau of Economic Research. Shin, K-Y. (2008), “Globalization and Social Inequality in Korea,” paper presented at the Neoliberalism in South Korea conference, University of Toronto. Wade, R. and Veneroso, F. (1998) “The Asian Crisis: The High Debt Model vs. the Wall Street-Treasury-IMF Complex,” New Left Review 228: 3–23. World Bank (2005) Equity and Development, World Development Report 2006. Washington, D.C.: World Bank. New York: Oxford University Press. Yoo, K-J. (2003) “The Direction of Social Welfare Policy Based on International Comparison of Income Distribution.” Korea Development Institute Policy Forum 167 (Korean). Seoul: KDI.

3 Neoliberalism in South Korea The dynamics of financialization Jin-Ho Jang

Neoliberalism as financialization In recent decades, there have been many discussions on neoliberalism, not only in academic research, but in the media and within political debates. These discussions tend to treat specific phenomena within government policies or in economic ideas and label them “neoliberal” or as “neoliberalism.” Many of these discussions miss an analysis of the fundamental dynamics of (re)producing neoliberalism. In this chapter, I focus on one of these fundamental dynamics, which I call “financialization.” The term financialization has recently been popularized by authors such as Kevin Phillips (2006) in the US. But “financialization” has a number of different meanings, depending on who is using it. In academia, a strict use of the term is preferred, although it can be discussed at a number of distinct levels. Some define financialization at the firm level as the increasing share of profits from financial investment in non-financial corporations (Crotty 2003). This may be described as convergence in business activities between financial and nonfinancial firms. For others, financialization is used to indicate changes at the level of the national economy. For example, some studies define financialization as the increasing share occupied by the financial sector in a national economy (Krippner 2005). Financialization is also used to indicate the power and dominance of financial players in corporations or at the level of the national or global economy. The financial players in such discussions include transnational institutional investors, who move large amounts of money across national borders. These players have become active and influential in guiding management practices and governance structures in large corporations, where they invest as shareholders. The global spread of so-called “shareholder value” as the global standard has also helped increase the power and returns of these big financial investors. This reflects a historical change of power in class relations toward the interests of big money owners and financial firms, and towards income and asset polarization at both domestic and global levels. French economists Duménil and Lévy (2004) paid attention to this change in power relations, calling it “financial hegemony.” In particular, they call post-World War II financial dominance “the second financial hegemony,” because they consider a similar phenomenon in the early twentieth century to have been “the first financial hegemony.” Finally, we can also discern

Neoliberalism in South Korea  47 another level of financialization: that of everyday life, through “the expansion of financially driven activities in people’s everyday socio-economic behaviors,” such as investing in shares, bonds and other financial assets. Some call this “mass investment culture” (Harmes 2001), and others the “financialization of daily life” (Martin 2002). In this chapter, I discuss the recent progress of neoliberalism in South Korea and then examine financialization in the country against this background. The examination is conducted at four levels: that of the firm, of the national economy, of class relations, and of people’s everyday behaviors.

“Korea Inc.” and its swift transformation It is widely recognized that the institutional framework of economic development in South Korea was the “state-banks-chaebol nexus” far into the mid-1990s (Shin and Chang 2003). In this framework, often known as “Korea Inc.,” the three key actors of the state, banks, and chaebol closely collaborated and were institutionally interlinked with one another for the purpose of the country’s economic growth and industrial transformation. The state’s financial guarantee of support for chaebol business ventures by state-controlled banks was the basic formula of economic development in South Korea during its decades-long high-growth period starting in the 1960s. The role of “policy-finance” by state-controlled banks in nurturing industries and supporting business was an essential part of the country’s development experience (Woo 1991). As seen in the creation and implementation of successive five-year economic development plans between 1962 and the early 1990s, the state’s industrial policy and chaebol cooperation, encouraged by “policy-finance” and other inducements, made the country’s industrial upgrading possible in the postwar period (Chang 1994). With all-encompassing structural reforms following the Asian financial crisis, however, the old developmental state in South Korea was swiftly transformed, though it had been undergoing changes at a steady but accelerated pace for years before the crisis. Several factors conditioned and facilitated the swift transformation. Factors influencing the transformation included the legitimacy problems of the chaebol, the prevalence of a neoliberal consensus among the domestic elite, the neoliberal hollowing-out of political democracy, and the contribution of some non-governmental organizations (NGOs). These issues are also related to specific actors such as chaebol, economic experts including technocrats, political groups, and NGOs. Hence, there have been significant social outcomes of the systemic transformation in post-crisis South Korea, which have been produced and exacerbated by ongoing neoliberal reforms, such as the increased presence of transnational capital in the economy, an increase in labor flexibility, inequality and poverty, and other societal changes. In 1998, opposition leader Kim Dae Jung became president after gaining an election victory as a result of widespread frustration with the previous ruling party. His administration implemented far-reaching domestic structural reforms under the IMF’s guidance in exchange for a monetary bailout coordinated by international financial institutions (IFI). Thus, the new government restructured the Korean economy with strict reform schedules and rules agreed upon with the

48  Jin-Ho Jang IMF. The direction of structural reforms, however, gave transnational capital and foreign businesses crucial advantages and more leeway, while domestic firms and financial institutions were forced to rapidly downsize or were driven into bankruptcy. Many of the assets of domestic businesses were sold to foreigners in fire sales, not just as a result of the aftermath of the crisis, but under pressure for reforms from the government. This system-wide restructuring had long-term and profound transformative effects on the Korean economy and society. The widespread recognition of state– business collusion and allegations that the chaebol-dominated economy was the main reason for the crisis contributed to this swift transformation. In the process, both the Korean elite and the public assumed that post-crisis reforms should be something that radically departed from the socio-economic structures and institutional configuration inherited from the country’s past. Structural reforms under two Korean administrations since 1998 exacerbated the concentration of wealth in the upper classes by benefiting those who own large assets (such as real estate, stocks, or bank deposits) – an intrinsic attribute of neoliberal policies. Critics of the reform measures promoted worldwide by the IMF included Joseph Stiglitz (2002), former World Bank senior vice-president and chief economist, who notes that the reform programs were implemented for the commercial and financial community’s interests at the expense of the interests of local people. Neoliberal reforms also increased speculative features in the domestic economy, and the stock market price index became more significant than any other economic indicator. Shortly after the crisis, the distrust of chaebol among domestic opinion leaders led to a blind preference for foreign capital of any kind. In combination with the reform programs agreed upon with the IMF, in 1998 the regulation of foreign capital was more radically liberalized in Korea than in any other OECD member country. The result has been the explosive increase of foreign portfolio investment (FPI) by globally mobile finance. As reforms commenced following the crisis, there existed a significant degree of consensus between South Korean policy-makers and the IMF on the direction and content of the reform programs (Hundt 2005). Two factors explain this convergence. First, in the emergency condition of crisis, choosing other policy options than those demanded by the IMF seemed domestically risky, because it could signal the government’s unwillingness to follow the rules preferred by transnational financial constituencies. Thus, it could cause more damage to the country’s international credit-rating determined by global rating agencies such as Moody’s and Standard & Poor’s (S&P).1 Second, the prevalence of neoliberal orthodoxy among economic policy-making circles and experts in South Korea in recent decades also led to this convergence in reform programs. “Neoliberal policies,” indeed, “are not just neutral, technical responses to a given type of crisis; rather, they reflect a process of socialization and cognitive development” (Centeno 1994: 140). Thus, strong homogeneity in neoliberal economic thinking facilitated the large-scale transformation of the domestic economic system.2 After the crisis, there was a strong transformative movement among the elite bureaucrats and economic experts in South Korea advocating for the AngloAmerican economic system. The combination of shareholder-oriented corporate

Neoliberalism in South Korea  49 governance, a stock market-centered financial system and a flexible labor market was presented as the ideal economic model. Indeed, these were identified as the “global standards” for efficiency, transparency, and accountability based on market principles. It is noteworthy that this neoliberal consensus was built not only on the ideational level, but also on common interests shared among the domestic elite. One study shows that many chaebol initially welcomed neoliberal reforms following the 1997 crisis, because they expected that the reforms would not only make labor more flexible and reduce its power, but would give the chaebol increased independence from government intervention (Crotty and Dymski 1998: 24). Another study emphasizes that elite bureaucrats also saw the reforms as a chance to maintain and expand their power in the wake of reforms that would make private actors vulnerable and more dependent on them (Lee et al. 2005: 30). A characteristic change in the economic discourse of post-crisis South Korea was the dominance of a discourse with an emphasis on the “inducement of foreign capital” as the path to economic recovery and revitalization. Some political factors were also crucial in the swift neoliberal transformation. These were related to the historical legacy of chaebol cooperation with authoritarian governments. Kim Dae Jung, a long-time opposition leader with an early career in labor activism, was not a preferred choice of chaebol leaders in the years leading up to the Asian financial crisis. In the post-crisis era, the past antipathy of the chaebol to Kim, combined with the popular recognition of Kim as more democratic than previous leaders, led to the public conception that a preference for foreign capital would make the economy not only more efficient, transparent, and accountable, but more democratic. In this way, reforms representing a radical departure from the historical past were construed as part and parcel of democracy in post-crisis Korea. Democratic claims made by the new ruling group in turn legitimized neoliberal reforms, thus mitigating public resistance, which might have been massive.3 With the enlarged presence and influence of transnational capital, the Kim Dae Jung government was able to increase its leverage over other domestic actors, including chaebol and labor, thus making the transformation of domestic institutions swift. Further, neoliberalism was packaged into a façade of inclusiveness in the form of the “Tripartite Commission on Industrial Relations,” established in January 1998 and consisting of labor, management, and government actors. It is noteworthy that some NGOs aided the process of mitigating mass resistance to neoliberal reforms. Ironically, domestic NGOs, which had actively participated in anti-corruption and economic democracy campaigns, became instrumental in the process and outcomes of the neoliberal transformation. As major legitimacy bearers and producers in democratic South Korea, NGOs were considered public watchdogs representing or even embodying a just civil society. Some major NGOs played the role of legitimizing reforms at the civil society level by popularizing and institutionalizing neoliberal ideas and policy proposals in the name of economic justice or democracy.4 During the period of the Kim Dae Jung government, which was based on a fragile political coalition at its inception, the role and influence of liberal NGOs were expanded and strengthened against both the oppositional conservative party, which symbolized the legacies of past authoritarianism, and

50  Jin-Ho Jang the chaebol, which retained a historical affinity with the conservative politicians. Some liberal NGOs advocated for more democratic causes against the conservative politicians and chaebol, and leading NGO activists stated that they believed in “liberal democratic and/or economic values.” Here, the role and activities of two prominent NGOs should be noted in particular: the Citizens’ Coalition for Economic Justice (CCEJ) and People’s Solidarity for Participatory Democracy (PSPD).5 CCEJ was founded as a “citizens’ movement” in 1989, at a time when radical “people’s movements” still prevailed in South Korea. Initially, CCEJ launched campaigns against land speculation and abuse of power by the chaebol. With its brains trust mostly consisting of liberal economists, CCEJ pursued the goal of establishing “competitive fairness in the market,” such as a separation between chaebol ownership and management, and a more equitable relationship between big business and small and medium-sized enterprises (SMEs). It also criticized collusion between government and big business. NGO economists’ advocacy for “competitive fairness,” combined with state campaigns for deregulation during the Kim Young Sam government (February 1993–February 1998), spread the idea of the autonomy of a free-market order uninhibited by government regulations. Meanwhile, CCEJ requested government intervention to achieve equity between actors in the market dominated by big business, which was of course welcomed by SMEs. Until the mid-1990s, as chaebol power was growing in South Korea to an unprecedented degree, CCEJ became a legitimate voice representing civil society. When neoliberal market principles became a universal agenda in the country after the Asian financial crisis, however, CCEJ’s activism lost its vitality. Some of its leading members took important government positions in economic ministries, such as Minister of the Fair Trade Commission. They were influential in institutionalizing the principles of the self-regulating market and demanding reforms not only of the chaebol but also of labor-market rigidity. PSPD began in 1994 as a citizen’s movement like CCEJ, but was critical of the latter as being too conservative. Some of PSPD’s founding members had close relationships with radical people’s movements, and they tried to reduce the gap between the two camps by spreading some social activist agendas out to the broader public, including the middle class. PSPD’s leading members were mostly professionals and academic intellectuals, well equipped to make and publicize policy proposals. PSPD soon became famous for its “minority-shareholder activism” which had started in 1996, while members were also engaged in various other areas of social activism, such as political reform, opposition to war, and advocacy for peace. In the early stages, the minority shareholder movement was welcomed by the public, as it challenged and monitored chaebol-owner families’ managerial malpractices and corporate control. But by exclusively emphasizing shareholders’ rights and corporate-governance issues, the PSPD’s “economic reform” activism, led by a Wharton School-educated business professor and other professionals, ignored other important issues, such as the socio-economic implications of the shareholder-centered corporate governance they had supported and of corporate ownership transfer in key industries. This is now more significant because the .

Neoliberalism in South Korea  51 sizable shareholders in the biggest chaebol and blue-chip corporations of South Korea have become transnational portfolio investors, including private equity funds. They swiftly move large amounts of money across borders, and with the support of growing shareholder activism, they influence corporate governance and ownership in host countries, prioritizing short-term high returns and increasing financial volatility (Grabel 1996). Most of all, the minority shareholder movement tends to disregard the interests of other stakeholders, such as workers or local people, firmly establishing the inviolability of exclusive private ownership (Dore 2000; Fligsein 2001; Lazonick and O’Sullivan 2000). In this way, neoliberalism was applied with much-needed political and moral legitimacy in Korean civil society as a hegemonic project under the drastically changed conditions present after the Asian financial crisis.

Recent dynamics of financialization As already indicated, neoliberal reforms have been accompanied by financialization in South Korea. At the firm level, there has been a clear change in the behaviour of firms. In the past, Korean firms pursued market-share maximization as their priority, while now they care mostly about profitability and investor returns on investment, expressed in such indicators as return on assets (ROA) or return on equity (ROE). According to a survey by the National Tax Service, in 2005 the average debt-to-equity ratio of Korean non-financial companies was 153 percent, while those in the US were at 258 percent (Hankyoreh 2007). The impressive reduction of the debt level also means constrained investment. The investment level of most large firms in the country fell below that of pre-1997 years. For example, the size of plant investment in the entire manufacturing sector was 20.65 trillion won in 2002, while it had been 43 trillion won in 1997 (Digital Times 2003). Financial disciplines imposed on Korean firms by investors have become extremely tight. Instead of productive “greenfield” investment, corporate mergers and acquisitions (M&A) have become a new growth engine and investment area, preferred by both domestic firms and foreign capital. In total, the amount of inflow foreign direct investment of M&A-type investments in 2006 was $0.79 billion while total value of “greenfield” type investments was $0.47 billion (Money Today 2006). Now firms have come to be considered more as “commodities” that can be easily bought and sold than as business communities producing goods and services and creating employment. The place of the financial sector in the national economy also shows some changes. Above all, the policy drive for building a “Northeast Asian Financial Hub” in South Korea was strongly pursued by the Roh Moo Hyun administration (February 2003–February 2008). This can be seen as a movement toward a financial “Big Bang” (i.e. radical liberalization) by government policies, which was also the case in the UK in 1986. With this policy goal in mind, a law to entirely restructure traditional financial institutions and regulations in Korea was passed in Congress in 2007. The establishment of the Korea Investment Corporation (KIC) as a sovereign wealth fund management body in 2003 was also an event in that direction. Government, media, and business opinion leaders hailed the financial

52  Jin-Ho Jang sector as a new growth industry for the economic future of the country – until the global financial crisis which began in late 2008. In the wake of the post-Asian financial crisis neoliberal reforms, foreign capital has become a major player in the domestic financial sector.6 Additionally, after the lifting of the ceiling of foreigners’ share-ownership in domestic firms, foreign investors have become large shareholders in many big firms. Companies with a significant proportion of foreign ownership now include some of the biggest and best-known Korean companies, including POSCO (formerly Pohang Iron and Steel), Samsung Electronics, SK, and Hyundai Motor. The percentage of foreignowned shares in these companies reached 67.3 percent, 59.5 percent, 54.1 percent, and 50.8 percent, respectively, by February 2004, up from 20.8 percent, 24.2 percent, 13.7 percent, and 23.6 percent, respectively, in November 1997 (Lee 2004: 68). In terms of market capitalization, the proportion of foreign-owned shares in all companies listed in the Korean securities market (except for KOSDAQ) increased from 13 percent in 1996 to 41.97 percent in 2004 (see Figure 3.1). A new perspective has arisen in Korean economic affairs actively demanding shareholder-oriented corporate governance, in which high stock prices and large dividends (i.e. high returns to shareholders) are considered more important than other factors in business performance. The transnationalization of corporate ownership and heightened emphasis on shareholder value are related to negative effects on the stability of employment and asset distributions. In terms of industrial innovation and potential business growth led by “committed” investment and research and development (R&D), we can also expect negative long-term effects, insofar as such trends in corporate governance and business practices preferring profit-distribution to shareholders are maintained.7

45 40

40.11 36.62

35 30

41.97

36.01

30.19

25 21.69

20

17.98

15 10

13

13.73

5 0 1996

1997

1998

1999

2000

2001

2002

2003

2004

Figure 3.1  Shareholding by foreigners in Korea Exchange (percentages) (http://www.krx. co.kr).

Neoliberalism in South Korea  53 With the opening of M&A markets and the increased presence of transnational capital, chaebol CEOs are increasingly concerned with defending against hostile takeovers. This has the additional effect of constraining industrial investment. According to one study, the general tendency in domestic business investment represented a moderate fluctuation among big businesses and a large decrease among SMEs, exacerbating performative polarization and imbalance between the two groups (Yoo 2004: 81). The ratio of stock dividend payout to investment in the facilities of listed Korean companies also increased, from 3.7 percent in 1998 to 6.6 percent in 2000, and to 22.4 percent in 2002 (Hankyoreh 21 2003). A shareholder-centered corporate system prefers and enforces labor flexibility (Lazonick and O’Sullivan 2000). In 2004, South Korea ranked twelfth among 28 OECD countries in a survey that assessed labor flexibility, showing that the conventional media representation of high labor rigidity in the country was a myth (Hankyoreh 2004a). According to another evaluation by US business magazine Forbes (2003), South Korea’s labor-market flexibility was ranked third among 17 OECD countries, with the US and Canada ranked first and second respectively, confirming a high level of labor flexibility. In ongoing neoliberal reforms, however, capital has continued to demand ever more labor flexibility. The deterioration of labor quality resulting from the increase in non-regular workers, such as temporary or day workers, is also a result of policies that move toward labor flexibility. For example, Table 3.1 shows that the ratio of non-regular workers, which was about 40 percent of all waged workers in Korea before the 1997 crisis, reached 55.4 percent (7,840,000) in August 2003. Their wage level is half that of regular workers. Female non-regular workers’ wage level is on average about 40 percent that of male regular workers’ wages (S.H. Kim 2004: 437). Besides the wage differentials, non-regular workers experience discrimination in terms of severance pay packages, bonuses, and insurance coverage, including pension plans, health, and unemployment insurance. In the face of dwindling fringe benefits and job security, social security measures have been inconsequential. The unemployment rate has declined since the peak at 6.8 percent in 1999, but this official rate is misleading because it ignores the increased number of both non-regular workers and the long-term unemployed who have found it difficult to find employment, eventually giving up on efforts to find work; these people are thus left uncounted in unemployment statistics (Lee 2003: 242; A. Kim 2004: 223). Further, the real wage of workers steadily decreased in the five years that

Table 3.1  Ratio of regular and non-regular workers, 1995–2003 (percentages) 1995

1996

1997

1998

1999

2000

2001

2002

2003

Regular worker 58.14 56.81 54.33 53.14 48.45 47.87 49.15 48.39 50.4 Temporary worker 27.89 29.60 31.60 32.87 33.60 34.49 34.60 34.45 34.7 Day worker 13.97 13.59 15.07 13.99 17.64 17.64 16.24 17.16 14.9 Sources: Shin (2003: 43); Kim (2004: 225).

54  Jin-Ho Jang followed 1997. With the real-wage level of 1997 at 100, that of 2001 was 98.1, while over the same period labor productivity increased by 45.4 percent (S.H. Kim 2004: 436–8). Simultaneously, as Table 3.2 shows, labor disputes have increased and 878 workers were arrested for illegal labor activism during the Kim Dae Jung government (1998–2002), an increase of 632 over the Kim Young Sam government (1993–7). The number of appeals by workers to the various levels of labor commissions regarding illegal layoffs and labor practices also increased during the same period (Chang and Chae 2004: 439; S.H. Kim 2004: 431–2). The income gap between the rich and the poor increased along with post-crisis neoliberal reforms. The Gini index, which details the situation of wealth distribution (0 = most equal, 1 = most unequal), is useful here. The Gini index for “market income” increased from 0.302 in 1996 to 0.374 in 2000. The Gini index for “disposable income” also increased, from 0.298 in 1996 to 0.358 in 2000. Both show an increase in income inequality during the period, even after improved public welfare intervention. The latter result meant that Korea had the third worst rating of OECD member countries, after Mexico (0.494 in 1998) and the US (0.368 in 2000: Yoo 2003; Hankyoreh 21 2003). According to another analysis, in South Korea, the gap in hourly income between the top 10 percent and the bottom 10 percent of the population was the largest (5.6 times) among OECD countries in 2003, with the US (4.3 times) in the second place (Lee 2003: 240). The “relative poverty ratio” of households, which indicates the proportion of households whose disposable income amounts to less than 40 percent of the median income of all households, also increased, from 7.7 percent in 1996 to 11.5 percent in 2000. Thus, with intensified neoliberal reforms after the Asian financial crisis, the relative poverty ratio of households in South Korea, which in 1996 was similar to Canada’s (Canada’s ratio being 6.5 percent in 1994 and 7.6 percent in Table 3.2  Number of labor disputes and participants, 1993–2004 Year

Labor disputes

Participants

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

144 121 88 85 78 129 198 250 235 322 320 462

108,577 104,339 49,717 79,495 43,991 146,065 92,026 177,969 88,548 93,859 137,241 184,969

Source: Korea Labor Institute.

Neoliberalism in South Korea  55 1998), in 2000 nearly reached the US level (the US ratio being 10.8 percent that year), which was one of the highest among OECD countries (Yoo 2003: 13; Sung 2004: 445).8 According to a report by Merrill Lynch, South Korea recorded the third highest rate of increase in millionaires (people who have net financial assets of $1 million), among all countries in 2003, behind Hong Kong and India. In 2004, South Korea was seventh, with an increase of 10.5 percent, growing to 71,000 millionaires among the population (Hankyoreh 2005a, 2005b). The number of people with relatively high incomes (those who receive 3 million won or more a month) also increased three times between 1999 and 2003, which shows that the increase in the wealth gap was not just a result of an increase in the number of households at the poverty level. Above all, inequality based on asset ownership is increasing, with houses becoming the objects of financial speculation, while low-income earners are unable to become homeowners.9 The problem of the “working poor” is central here (cf. Shipler 2004, for the US case). The problem is related not only to the enforcement of labor flexibility, which increasingly produces non-regular workers, but to the mechanism of hierarchical fragmentation among workers, such as a merit-based wage system instead of a seniority-based one. This has led to the spread of a “mass investment culture” in South Korean society, because with such job insecurity people are no longer guaranteed financial security in their old age (Table 3.3). At the end of 2007, Hankyoreh 21, a popular weekly magazine, selected mass fund investors as “Person of the Year in Korea,” and proclaimed 2007 as the opening year of the age of “mass fund investment.” On the other hand, workers increasingly becoming investors in funds show some signs of weakening labor-union solidarity. In summer 2007, workers in Hyundai Motors unexpectedly spoke out against a strike decision by union leaders which workers had earlier accepted, because the workers as mass investors themselves worried more about the decline of the company’s stocks than about the cause of the strike that their union leaders had promoted. Increased job insecurity, associated with the increased financial burden of parents for their children’s education, Table 3.3  Amount of fund investment by type in Korea (in trillion won) Stock type

Mixed type Bond type

MMF type Others

Total

2001 2002 2003 2004 2005 2006 2007

6.92 10.48 9.40 8.55 26.18 46.55 116.35

48.55 52.62 39.19 34.55 42.46 47.95 44.66

64.17 61.59 54.39 75.89 51.43 50.42 40.86

35.40 49.48 42.05 59.80 64.85 57.15 46.74

– – – 8.20 19.42 32.54 49.08

155.04 174.17 145.04 186.99 204.33 234.61 297.70

2008

140.21

39.59

30.52

88.90

62.09

361.31

Source: Korea Financial Investment Association (http://www.kofia.or.kr).

56  Jin-Ho Jang has brought about a social reproduction crisis as well. The 2002 fertility rate in South Korea (1.17) was lower than that of the US (2.13), France (1.89), the UK (1.64), Germany (1.33), Japan (1.33), or Spain (1.22). The rate marks a drop in the Korean fertility rate from 1.54 in 1997 (A.E. Kim 2004: 231).

Concluding remarks There is no future in a society where the monopolization of wealth and mass production of the “working poor” are accelerated in the name of “reforms” or even “democracy.” The issues of poverty, inequality, and a rapidly aging society cannot be separated from these rapid changes to the socio-economic structure and the power relations that create them. I have discussed various aspects of rapid neoliberal transformation in South Korea after the Asian financial crisis in terms of certain social conditions: the legitimacy problem of the chaebol, the neoliberal consensus among the domestic elite, political democracy as hijacked by neoliberalism, and the role of some NGOs in the transformation. I then examined the recent dynamics of financialization in the country at firm, industrial sector, class relation, and everyday behaviour levels. Firms have become saleable commodities, and now pursue profit maximization, not an increase in investment and employment-creation. The financial industry has become a new growth sector for the economic future of the country. The enlarged presence of transnational capital in the domestic economy, combined with the growth of the financial industry, has led to financial speculation and mimetic effects by other players in the domestic economy on the one hand, and to the increase of labor-market flexibility, and thus the increasing wealth gap, on the other. Mass investment culture produced by such labor market insecurity in turn has been reinforcing economic polarization among the population, destroying the social body. It also has made financial instability chronic, as seen in the situation where the country has been severely affected by the global financial crisis of 2008. It is true that this swift transformation is creating and increasing not only social stress for the “have-nots,” but opportunities for the “haves.” For the large number of people in Korean society who bear the burden of neoliberal reforms, the need for solidarity and welfare-oriented socio-economic alternatives to neoliberal campaigns is now increasingly becoming clear.

Notes 1 For the importance of signaling creditworthiness to global financial markets and the IMF, see Soederberg (2005). See also Sinclair (2001) for the role of quasi-public authority garnered by these private credit-rating firms in the arena of global governance, and the resulting anti-democratic implications. 2 Regarding the emergence of neoliberal orthodoxy among Korean economic experts, Alice Amsden (1994) noted before the accelerated process of neoliberalization that began after the Asian financial crisis that it was significant, and at least one empirical study supported Amsden’s argument (Choi 1996). According to a survey, Koreans held nearly 10 percent of PhDs in economics coming from US universities between 1987 and 1995, while South Korea accounted for only 0.75 percent of the world’s population over that span (Shin and Chang 2003: 136). After coming back to Korea, many of these graduates became “policy entrepreneurs” or “technopols,” in other

Neoliberalism in South Korea  57 3

4

5

6

7

8

9

words “change teams” who led a neoliberal drive in government, academia, media, and business. For a discussion of the strong pro-democracy movements in South Korea, see Abelmann (1996) for student and farmer movements, Kim (2001) for the roles of a “triple solidarity of students, laborers and churches” in the 1970 and 1980s and of local NGOs in the 1990s, Koo (2001) for a detailed history of the labor movement, and Kim (2003) for various democratic issues, including women and international relations. Kim (2001: 106–11) distinguishes between “people’s movement groups” and “citizens’ movement groups” as the two major democratic camps making up Korean civil society after the late 1980s. The NGOs discussed here are considered to be in the latter category, which are more or less similar to “new social movements,” while people’s movements include more traditional, class-based social movement groups. The relationship between NGOs and civil society is not simple. The cases of CCEJ and PSPD are complicated because some of their work contributed significantly to the cause of democracy in South Korea. But the discussion here focuses on local NGOs’ role in the neoliberal transformation. There may be some tensions among members involved in different areas in each of these NGOs (e.g. in PSPD, between participants in shareholder activism and those in anti-war and civil rights activism). For example, three of the eight largest nationwide banks (Korea First Bank, Korea Exchange Bank, and Citibank Korea, formerly KorAm Bank) have become foreign owned since the Asian financial crisis. “Foreign banks now have a 21 percent chunk of the Korean market, an Olympic leap from the 4 percent share in 1997 and a dash from 15.5 percent in 2003” (Asia Times 2005). The proportion of foreign-owned shares in the remaining five banks is on average over 50 percent (Hankyoreh 2004b, 2005). For example, in Kookmin Bank, the largest bank in South Korea, the proportion of foreignowned shares reached 75.4 percent in February 2004. As for the problems of corporate governance in the US, which was changing from “(profit)-retaining and reinvesting” to “(labor-) downsizing and (profit-) distributing” since the 1980s, driven by the spread of shareholder value ideology, see Lazonick and O’Sullivan (2000). With intense neoliberal reforms since 1998, transnational finance capital, now a major portfolio investor in Korean stock markets, has exacerbated speculative features of the economy. The relative poverty ratios of households in Canada were 7.5 percent in 1981, 6.3 percent in 1987, 6.5 percent in 1994, and 7.6 percent in 1998, while those in the US were 12.4 percent in 1986, 11.5 percent in 1991, 11.8 percent in 1994, and 10.8 percent in 2000 (Yoo, 2003: 13). During the 1980s, there was strong social and moral criticism of land and house speculation, which was depriving the poor of their housing, and of increasing housing prices in general. At present, however, such speculation has become a proof of “rich dads’ ability.” The skills of speculation, popularly referred to as “jae-tech” (asset-tech), were justified and even encouraged by bestselling books like Robert Kiyoshi’s Rich Dad, Poor Dad. In this way, people are being pushed into making more conscious and competitive efforts to become rich. This neoliberal social trend, called the “rich virus,” may be accompanied by contempt for the poor in society (see Han 2003: 296).

Bibliography Abelmann, N. (1996) Echoes of the Past, Epics of Dissent: A South Korean Social Movement. Berkeley: University of California Press. Amsden, A. (1994) “The Specter of Anglo-Saxonization Is Haunting South Korea,” in L.J. Cho and Y.H. Kim (eds.), Korea’s Political Economy: An Institutional Perspective, 87–126. Boulder: Westview. Asia Times (2005) 15 February.

58  Jin-Ho Jang Centeno, M.A. (1994) “Between Rocky Democracies and Hard Markets: Dilemmas of the Double Transition,” Annual Journal of Sociology 20:125–47. Chang, D. and Chae, J.H. (2004) “The Transformation of Korean Labour Relations since 1997,” Journal of Contemporary Asia 34, no. 4: 427–48. Chang, H.J. (1994) The Political Economy of Industrial Policy. New York: St. Martin’s Press. Choi, Y.B. (1996) “The Americanization of Economics in Korea,” in A.W. Coats (ed.), Internationalization of Economics, 97–122, Durham, NC: Duke University Press. Crotty, J. (2003) “The Neoliberal Paradox: The Impact of Destructive Product Market Competition and Impatient Finance on Nonfinancial Corporations in the Neoliberal Era,” Review of Radical Political Economics 35, no. 3: 271–79. Crotty, J. and Dymski, G. (1998) “Can the Global Neoliberal Regime Survive Victory in Asia? The Political Economy of the Asian Crisis.” Online. Available HTTP: (accessed August 1, 2005). Digital Times (2003) 15 September. Dore, R.P. (2000) Stock Market Capitalism: Welfare Capitalism – Japan and Germany versus the Anglo-Saxons. Oxford: Oxford University Press. Duménil, G. and Lévy, D. (2004) Capital Resurgent: Roots of the Neoliberal Revolution. Cambridge, MA: Harvard University Press. Fligstein, N. (2001) The Architecture of Markets: An Economic Sociology of Twenty-FirstCentury Capitalist Societies. Princeton: Princeton University Press. Forbes (2003) 15 September. Grabel, I. (1996) “Marketing the Third World: The Contradiction of Portfolio Investment in the Global Economy,” World Development 24, no.11: 1761–76. Han, S.B. (2003) The Rich in South Korea. Seoul: Wisdom House (in Korean). Hankyoreh (2003) 13 November. —— (2004a) 1 September. —— (2004b) 10 October. —— (2005) 15 August. —— (2007) 5 February. Hankyoreh 21 (2003) 13 November. Harmes, A. (2001) “Mass Investment Culture,” New Left Review 9 (May–June): 103–24. Hundt, D. (2005) “A Legitimate Paradox: Neo-Liberal Reform and the Return of the State in Korea,” Journal of Development Studies 41, no. 2: 242–60. Kim, A.E. (2004) “The Social Perils of the Korean Financial Crisis,” Journal of Contemporary Asia 34, no. 2: 221–37. Kim, S. (2001) Politics of Democratization in Korea: The Role of Civil Society. Pittsburgh: University of Pittsburgh Press. Kim, S.H. (2004) “Distorted Institutionalization and Expanded Flexibility: An Evaluation on Labor Policy during the Kim Dae-Jung Government,” in C.W. Jun and J.B. Kim (eds.), Korean Capitalism after the 1997 Crisis, 419–44. Seoul: Pulbit (in Korean). Kim, S.S. (ed.) (2003) Korea’s Democratization. Cambridge: Cambridge University Press. Koo, H. (2001) Korean Workers: The Culture and Politics of Class Formation. Ithaca, NY: Cornell University Press. Krippner, G. (2005) “The Financialization of the American Economy,” Socio-Economic Review 3: 173–208. Lazonick, W. and O’Sullivan, M. (2000) “Maximizing Shareholder Value: A New Ideology for Corporate Governance,” Economy and Society 29, no. 1: 13–35. Lee, K., Kim, B.K., Lee, C.H., and Yee, J. (2005) “Visible Success and Invisible Failure in

Neoliberalism in South Korea  59 Post-Crisis Reform in the Republic of Korea: Interplay of Global Standards, Agents, and Local Specificity,” World Bank Policy Research Working Paper 3651. Online. Available HTTP: (accessed July 10, 2005). Lee, K.K. (2004) “Capital Account Liberalization, Economic Growth, and Crisis,” in Chan-Keun Lee (ed.), The Evaporating Korean Economy, 52–73. Seoul: 21st Century Books (in Korean). Lee, Y.W. (2003) “Poverty and Social Policy in South Korea,” Memories and Prospects 5: 238–50 (in Korean). Martin, R. (2002) Financialization of Daily Life. Philadelphia: Temple University Press. Money Today (2006) 14 July. Phillips, K. (2006) American Theocracy: The Peril and Politics of Radical Religion, Oil, and Borrowed Money in the 21st Century. New York: Viking. Shin, K.-Y. (2003) “Social Classes and Inequality in South Korea,” Economy and Society 59: 32–54 (in Korean). Shin, J.S. and Chang, H.J. (2003) Restructuring Korea Inc. New York: Routledge Curzon. Shipler, D.K. (2004) Working Poor: Invisible in America. New York: Knopf. Sinclair, T.J. (2001) “The Infrastructure of Global Governance: Quasi-Regulatory Mechanisms and the New Global Finance,” Global Governance 7, no. 4: 441–51. Soederberg, S. (2005) The Politics of the New International Financial Architecture: Reimposing Neoliberal Domination in the Global South. London: Zed. Stiglitz, J. (2002) Globalization and Its Discontents. New York: W.W. Norton. Sung, N.S. (2004) “The Changes in Social Welfare Provisions and the Poverty Problem since the Financial Crisis,” in C.W. Jun and J.B. Kim (eds.), Korean Capitalism after the 1997 Crisis, 445–90. Seoul: Pulbit (in Korean). Woo, J.E. [Meredith Woo-Cumings] (1991) Race to the Swift: State and Finance in Korean Industrialization. New York: Columbia University Press. Yoo, C.G. (2004) “Understanding Current Issues of Korea’s Economy: Globalization and Socio-Economic Bipolarization,” Trend and Prospect 61: 68–100 (in Korean). Yoo, K.J. (2003) “The Direction of Welfare Policy Based on the International Comparison of Income Distributions.” KDI Policy Forum no. 167. Seoul: Korea Development Institute (in Korean).

Part II

Ethnographic and historical accounts

4 Contesting legal liminality The gendered labor politics of irregular workers in South Korea Jennifer Jihye Chun

“November 25, 2008 marked the 1000th day of our struggle,” recalled Min Jeong Kim, a member of the KTX Crew Workers’ Branch Union of the Korean Railway Workers’ Union. “I still vividly remember the first day when we went on strike 1000 days ago. And of course, I won’t forget the day when I started working as a KTX crew member.”1

Min Jeong secured a highly coveted job as a train attendant on the nation’s first high-speed bullet train, the KTX (Korea Train Express), which debuted on April 1, 2004. This was not only a momentous occasion for Min Jeong and the 350 other women who were hired as KTX train attendants; it marked the crowning achievement of the Korea Railroad Corporation (KORAIL), which made it possible for South Korea to became one of only five nations in the world that offered highspeed rail services at 300 kilometers per hour. KORAIL strived to deliver worldclass technology with world-class service by hiring the kind of young, slender, poised, beautiful, and college-educated woman that evoked images of “flight attendants on the ground.” In addition to demanding educational qualifications, including high levels of English-language proficiency, KTX train attendants had to meet stringent physical criteria, including height and weight standards, and pass a workplace entrance exam. For Min Jeong, getting a job as a KTX train attendant was like a “dream come true”; it was a source of pride and prestige in an ever more competitive labor market for young, college-educated women. Min Jeong’s initial excitement and anticipation, however, were transformed into feelings of anger, resentment, betrayal, and despair. After three years of intense protest, including holding public rallies and marches, occupying KORAIL offices and the National Assembly building, shaving union members’ heads, holding hunger strikes and scaling 40-m-high metal towers, she is one of the few remaining striking KTX train attendants still embroiled in a bitter, drawn-out labor dispute against KORAIL.2 Since the first day of their strike, the KTX Crew Workers’ Branch Union have pursued a single, overarching demand: reclassification from irregularly employed (pijŏnggyujik) workers under a third-party subsidiary to formal and directly hired employees (jŏnggyujik) under KORAIL.3 The irregular nature of their employment arrangements was supposed to be temporary, according to Min Jeong; after one year on the job, KORAIL promised permanent positions to female KTX attendants, the

64  Jennifer Jihye Chun kind of “lifetime jobs” that brought job security and career mobility as “semi-public servants.” However, as time passed, their so-called temporary jobs became a permanent reality, one that corresponded to a perpetual state of vulnerability and discrimination. For example, instead of offering KTX train attendants regular job positions with KORAIL after one year of employment, KORAIL hired another subsidiary corporation to rehire KTX train attendants at reduced pay and benefit levels. KTX train attendants were also asked to perform additional duties outside their workplace such as greeting passersby wearing hanbok (traditional Korean dress) in front of the Seoul train station and other public places on national holidays. When they objected to reduced compensation levels or additional work duties, Min Jeong explains, “the corporation threatened us by mentioning possible disadvantages in the rehiring process.”4 Blatant gender discrimination on the job represented a source of frustration and discontent. Female KTX attendants reported being sexually harassed by their male supervisors and fired for being pregnant. Women were also assigned subordinate job positions under male “team leaders,” who unlike female train attendants were directly employed by KORAIL, despite the fact than women and men did similar work. To dramatize the exploitative conditions of irregular employment, the union engaged in a series of intense and escalated public pressure tactics.5 One particularly vivid protest image was the scene of hundreds of young women protesting in their highly feminine KTX train attendant uniforms – sleek, fitted grey skirt suits, colorful neck scarves, nude stockings, and black pumps – with their mouths gagged by white masks painted with large black “X’s” and their bodies shackled with metal chains. From the union’s perspective, the irregular employment arrangements of female KTX train attendants represented a “disguised” form of employment that justified their discriminatory treatment as “second-class” employees and, thus, needed to be eliminated. From the company’s perspective, however, the union’s grievances were neither legitimate nor legally defensible. KORAIL refused to negotiate with the branch union under the pretext that they are not the formal employers of striking KTX attendants and, thus, are not responsible for resolving any labor disputes with the union. KORAIL also disputed the “illegality” of outsourcing labor contracts to an external subsidiary, a practice considered a “proven method … performed even in foreign countries,” according to KORAIL CEO and President, Mr. Lee Chul.6 Different state institutions issued contradictory interpretations regarding the employment status of dismissed KTX attendants, resulting in a legal stalemate between the union and KORAIL. While the National Human Rights Commission and the Seoul Central District Court supported the union’s claims, the Ministry of Labor sided with KORAIL. Thus, after three years of continuous protest and struggle, striking KTX train attendants have made little progress in their efforts to reclassify their employment status. What does KTX union’s dispute against KORAIL reveal about the terms and conditions of irregular employment? What does the prolonged and protracted nature of the KTX union’s struggle highlight about the dynamics of irregular workers’ struggles? How do cultural understandings about gender and labor militancy affect the trajectory of labor disputes waged by workers located on the margins of the economy and society, especially historically disadvantaged groups of women in the labor market?

Contesting legal liminality  65 This chapter aims to deepen our understanding of the shifting terrain of work and unionism in South Korea by focusing on the gendered dimensions of neoliberal employment regimes. I begin by outlining a theoretical approach to studying irregular employment, emphasizing the significance of what I call “legal liminality.” Next, I provide background on the gendered characteristics of irregular employment, paying close attention to the state’s role in channeling peripherally employed women into downgraded forms of irregular employment. Third, I discuss the trajectories of several key labor disputes waged by irregularly employed women workers, focusing specifically on the role of union strategies and protest repertoires. I conclude by reflecting on divergent features of irregular workers’ struggles. While it is difficult to generalize about the factors affecting success and failure, it is important to call attention to the limits of highly oppositional and polarized forms of union militancy under today’s neoliberal employment regimes. Militant forms of unionism may have helped overturn the labor repression of past authoritarian state regimes, but it is increasingly unable to generate effective forms of leverage for the growing ranks of women workers enmeshed in structurally ambiguous, asymmetrical, and discriminatory employment relations.

The shifting terrain of work and unionism: the legal liminality of irregular employment The emergence of highly contested labor struggles over the terms and conditions of employment reflect broader shifts in the terrain of work and unionism in South Korea. Unlike the 1980s, which were marked by the rapid growth of formally employed waged and salaried workers in industrial sectors, the 1990s were characterized by the marked expansion of irregular employment, particularly in the service sector, which was the only growth sector during the decade (Ahn 2002: 3).7 Two types are included in the category irregular employment: (1) precarious work, also referred to as casual or contingent, in which workers are employed for less than one year (e.g. daily and part-time workers) and (2) atypical or non-standard employment arrangements that deviate from the standard of full-time, permanent employment under a single employer (e.g. independent contractors, workers employed by intermediary agencies such as temporary agencies or subcontracting firms, and on-call workers).8 As new types of employment expand beyond the scope of full-time, permanent work under a single employer, the International Labor Organization (ILO) asserts that we are witnessing “the growing phenomenon of workers who are in fact employees but find themselves without the protection of an employment relationship” (International Labor Organization 2006). Although there are certainly exceptions, the recruitment of irregular workers represents a popular business strategy to depress wages, circumvent labor laws, and undermine unionism, particularly in the aftermath of the 1997–8 Asian financial crisis. While various forms of irregular employment existed before the Korean government accepted the terms of a $58 billion emergency loan agreement from the International Monetary Fund (IMF), the state has actively promoted the passage of neoliberal labor policies such as the amendments to the National

66  Jennifer Jihye Chun Labor Standards Act that allow employers to legally fire workers as a result of “economic hardship” and hire workers through temporary “labor dispatch” (p’agyŏn) agencies for the first time. In the context of neoliberal employment deregulation, many employers began hiring irregular over regular workers as a “low-road” management strategy (Kim and Park 2002). A 2004 newspaper article in the Korea Central Daily succinctly described the nexus between employment status and discrimination, “They [irregular workers] do the same job during the same hours as regular workers, but for far less pay. Legally, it’s not discriminatory because these employees are classified as non-regular, meaning they have been hired on a temporary basis or on contract. In the efforts to cut costs, companies are free to adopt a two-tier wage system” (Korea Central Daily 2004). Although government and media attention were focused on the unemployment crisis as it affected male workers, the economic crisis severely impacted women (Song 2006). The Korea Labor Institute reported that six months after the national currency market collapsed, only 7.8 percent of newly hired women workers were employed as regular workers; the remaining 92.2 percent were employed as irregular workers. Yoonsook Moh, the head of the Incheon Women Workers’ Association, explained how women have become disproportionately affected by irregular employment: Under the current economic crisis, many companies have discriminated against women and forced regular female workers to become irregular workers under the pretense of necessary restructuring … Regular women workers are dismissed and/or victims of the closure of their women-concentrated departments and then re-employed through temporary employment agencies. In addition, companies usually terminate female workers who attempt to resist these unfair labor practices. Since companies target female workers first and concentrate on women for unfair labor practices, the irregular employment of women workers has rapidly increased. (Moh 1999) By combining gender subordination with employment status discrimination, companies have been able to depress existing wage standards and working conditions. Gendered cultural logics, thus, allow businesses to replace existing norms and obligations with neoliberal logics and practices that treat labor as an abstract factor of production, whose price is determined by the “infiltration of marketdriven truths and calculations into the domain of politics” (Ong 2006: 3–4). In response to the downward trends associated with irregular employment, workers and trade unions began contesting the legitimacy of neoliberal employment reclassification. In addition to striking KTX train attendants, women employed as golf game assistants (kyŏngki pojowŏn) and home study tutors (haksŭpchi) misclassified as independent contractors; hotel room cleaners, school, cafeteria workers, and electronics manufacturing workers employed under “disguised” third parties; and telephone operators and retail cashiers employed under permanent forms of temporary contract employment have all formed unions to challenge the unjust and discriminatory nature of irregular employment. New organizational

Contesting legal liminality  67 entities such as the Korean Women’s Trade Union (KWTU: chungguk yǒsǒng nojo) and Korean Solidarity against Precarious Work (KSPW: puranchǒng ch’ǒlpaeyǒndae) have been created to support the struggles of newly organized irregular workers, particularly those carried out by non-traditional union actors such as women employed in the service sector. While slower to take leadership on the issue, national labor confederations – the Korean Confederation of Trade Unions (KCTU: minju noch’ong) and the Federation of Korean Trade Unions (FKTU: hankuk noch’ong) – have also pledged to “abolish irregular employment” (pijŏnggyujik ch’ŏlpye) and reject the neoliberal state’s continued legalization of irregular employment, acts that epitomize the “evil laws” (ak’bǒb) of previous authoritarian regimes. The mounting resistance of workers and labor organizations to the terms and conditions of irregular employment has revealed a distinctive feature about irregular workers’ struggles: labor disputes are plagued by a pervasive state of “legal liminality” – that is, a state of institutional exception in which workers are located in the “cracks” and “fissures” of formally regulated employment (Rothenbuhler 1988). Irregular workers are neither fully protected by nor fully denied the rights and entitlements of workers under the law. The inability of workers to access clearly defined labor rights creates conflicting interpretations over the meaning of the law and the contractual obligations regulating the social exchange of labor for a wage. In other words, contrary to the notion that the law represents an abstract and universal set of meanings and interpretations, struggles waged by irregular workers highlight the fact that “the law consists of a complex repertoire of meanings and categories understood differently by people depending on their experience with and knowledge of the law” (Merry 1990: 5). On the one hand, the language of legality lends coherence to a newly implemented set of neoliberal labor policies that justify the use of discriminatory employment practices. On the other hand, the “legal consciousness” of striking workers, expressed in their public acts of protest, demands adherence to the enforcement of customary norms and obligations as well as labor rights codified in the nation’s founding democratic documents such as the 1948 National Constitution and the 1953 National Labor Standards Act. The legal liminality of irregular employment has resulted in the proliferation of highly contested “classification struggles” over the contractual terms of employer–employee relations (Chun 2009). Labor’s classification struggles represent competing struggles for the authority to portray a binding and authoritative view of employment, a political struggle that Bourdieu describes as cognitive struggles for the ability “to impose the legitimate knowledge of the sense of the social world, its present meaning and the direction in which it is going and should go” (Bourdieu 2000a; see also 1991, 2000b). The comparative advantage during the course of a classification struggle usually favours the more authorized parties in a labor dispute such as state-run businesses and familiar corporate entities such as the Korea Railroad Corporation. According to Bourdieu, “the State is the site par excellence of the imposition of the nomos, the official and effective principle of the construction of the world” (Bourdieu 2000b), and fractions of the dominant class such as corporations or elite actors possess multiple sources of economic,

68  Jennifer Jihye Chun cultural, and political capital to buttress the legitimacy of their symbolic claims. Consequently, subordinated groups such as workers are at a structural and cultural disadvantage when waging a classification struggle. It is crucial, however, to acknowledge the significance of alternative forms of symbolic leverage that can be cultivated by subordinated actors during the course of a classification struggle, which may tilt the balance of power in their power.9 One particularly salient form of symbolic leverage for striking workers stems from previous social movements, such as the minjung movement, the pro-democracy student movement and the struggle for democratic unions (minju nojo). By appealing to understandings of law and legality that are rooted in the contested arena of culture and public debates about values, rather than legal and economic rationality, subordinate groups can generate alternative forms of symbolic leverage to challenge the legitimacy of neoliberal forms of employment classification. The symbolic leverage of subordinated groups, however, is fundamentally unstable; its power to persuade and mobilize public support must continually be renewed and reaffirmed in the face of contestation (Chun 2009: 16). This means that the continued utility of labor’s contentious politics must be reassessed in light of changing historical conditions, especially the shifting balance of power between labor, capital, and the state. Acknowledging the role that labor politics plays in the dynamics of a classification struggle does not minimize the overarching role of the state in tilting the balance of power in favour of capital, particularly in cases when police violence is deployed to break up a strike and punitive legal and economic sanctions are applied to striking workers. Rather, it calls attention to the significance of cultural logics and practices in strengthening the leverage of striking workers during the course of a classification struggle that is already heavily weighted against them.

The gendered dimensions of irregular employment To understand how neoliberal employment regimes have shifted the historical conditions of work and unionism in South Korea, it is necessary to adopt a gendered analysis. As Guy Standing (1989: 583) puts it, this new era of flexible labor is not only characterized by “generalized insecurity and precariousness” but also by the feminization of flexible employment in a dual sense: an increasing proportion of jobs that were traditionally held by men now reflect traits historically associated with downgraded forms of “women’s” work, and an increasing proportion of women are employed in such insecure and atypical jobs. The feminization of flexible labor is clearly evident in South Korea. Since 1999, the number of irregular jobs defined by job tenure and entitlement to fringe benefits (comprising temporary and daily workers) has surpassed full-time, permanent work as the dominant form of formal employment (51.7 percent). While an OECD Economic Survey of Korea, published in October 2005, reports that this figure is closer to about a third of the total workforce (29.7 percent in 2004), it also finds that Korea has the second highest rate of non-standard employment growth among all OECD countries (Jones 2005: 4). Women in Korea are also disproportionately overrepresented in non-standard employment, with only 37 percent of women employed in regular

Contesting legal liminality  69 jobs in contrast to 62 percent of men (ibid.: 4). Women have historically had lower and intermittent levels of labor-force participation, rendering them more likely to hold jobs on the lower end of the job ladder, but the expansion of irregular employment reflects a significant process of feminization. Women are not only more likely to hold more precarious jobs, but job standards have also been downgraded to levels associated with devalued forms of women’s work. Pervasive wage disparities reveal that employers have a significant cost incentive to adopt irregular employment. Figures show that in 2001, non-standard workers received 59.4 percent (4,833 won) of the average hourly wage of full-time workers (8,130 won) and 52.45 percent (877,000 won) of the average monthly wage of full-time workers (1,672,000 won). For workers in atypical forms of employment such as temporary agency or home-based employment, hourly wages were as low as 3,864 won (47.5 percent) and 3,165 won (38.9 percent), respectively (Ahn 2006: 23–4). Women in all types of atypical employment earned less than their male counterparts, with women in temporary employment and labor dispatch and subcontracted work making 44.5 percent and 37.1 percent less per month than regularly employed male wage and salary workers (1,693,973 won; Lee 2002: 14). Social insurance coverage and fringe benefits were also significantly lower for atypical workers, particularly those workers employed in temporary agencies and engaged in independently contracted or on-call work. In a 2007 survey on labor conditions by type of employment, the Ministry of Labor found that while 90 percent of full-time workers are covered by social insurance protections, only 50 percent of irregular workers are covered by national pension, health insurance, and unemployment insurance (with the exception of industrial accident compensation insurance; Korean Ministry of Labor 2008). Lower-paid and insecure forms of irregular employment have been and continue to be the dominant pattern of employment for women in wage employment. As mentioned in the previous section, the legalization of flexible and precarious employment arrangements during the 1997–8 Asian financial crisis rendered irregular employment synonymous with discriminatory labor practices. Many accounts of the neoliberal turn in labor regulation focus on the period after 1997, which bestowed discriminatory employment practices with the “language of legality.” However, beginning our analysis there fails to illuminate the centrality of gender in the state-led expansion of irregular employment and the disproportionate impact of neoliberal employment practices on historically disadvantaged groups of women workers. Since the rapid development of Korea’s industrial economy under authoritarian rule, the state has been centrally involved in the creation, regulation, and reproduction of a cheap labor force along gendered lines. The state’s role in targeting and recruiting young, single women from rural areas as a source of cheap labor in export-oriented industries such as garment, textiles, toys, shoes, and electronics during the 1970s is well documented (Chun 2004; Kim 1997; Koo 2001). The role of the state in channeling women into discriminatory sectors of irregular employment, however, has been less documented. The Korean Women Workers’ Association (KWWA), an NGO promoting women workers’ rights through advocacy and education, reported that the state played an active role in the expansion

70  Jennifer Jihye Chun of a feminized workforce in irregular employment. Under the Sixth Economic Development Plan (1987–91), the Roh Tae Woo administration redirected state financial and tax subsidies to promote overseas investment in female-dominated, labor-intensive manufacturing sectors. As tens of thousands of Korean women lost their labor-intensive manufacturing jobs, the government and employers’ federations “began actively encouraging the recruitment of married women and older people for temporary jobs” as a means of redirecting newly unemployed women workers into non-standard employment (Korean Women Workers’ Association 2000: 35). One such example included the introduction of a 1991 labor law revision, which was introduced by an employers’ group lobby and passed in January 1992. This proposal sought to exclude part-time workers from basic welfare benefits such as a paid day off work per month, annual personal leaves, pregnancy leaves, and other benefits. A 1992 White Paper on labor, authored by the Ministry of Labor, supported this proposal, stating that “women are limited by family life and skills and therefore more suited to hourly work than regular employment” (KWWA 1991: 38). The state’s gendered logic assumed that women as secondary earners – not primary breadwinners, like men – did not need the full range of welfare benefits provided to full-time, permanent workers. The 1994 Standard Plan on the Welfare of Women Workers, which was proposed as a comprehensive policy on women’s employment security, maternity protection, and welfare, further sought to direct women into more precarious forms of temporary employment by reauthorizing certain agencies – better known as manpower firms or labor dispatch agencies (pagyǒn ǒpch’ae) – to operate solely as labor brokers. Despite this particular initiative, there was little legal enforcement exercised against illegally operating labor dispatch companies. Thus, when this practice was fully legalized by the 1998 National Labor Dispatch Law (pagyǒn bǒb), several hundred thousand women were already employed in labor dispatch companies.10 Ironically, the development of two-tiered employment arrangements became a preferred business practice in companies with gendered divisions of labor after the passage of the 1987 Equal Employment Act. Because this act prohibited explicit forms of gender discrimination in the workplace, companies began adopting more indirect forms of gender discrimination in the workplace. For example, before 1987, financial firms exclusively hired women for clerical positions. After 1987, they replaced this practice with a more covert form of discrimination in which existing gender discrimination was mapped onto a new human resource system. By dividing the workforce into “variable” and “standard” positions, a practice developed in the Japanese financial industry in the 1980s, workers were resegregated by gender via employment arrangements. Workers in variable positions were eligible for promotion; workers in standard positions were not and tended to be confined to lower-skilled, repetitive jobs (Moon 2006; see also Cho 2000). The adoption of two-tiered employment practices allowed employers to continue practicing gendered forms of employment discrimination under an array of irregular employment arrangements. Managerial activities like outsourcing to a subcontractor (hach’ǒng) or temporary employment agency (p’agyǒn) provided employers an avenue to offload the legal obligation to negotiate over the terms

Contesting legal liminality  71 and conditions of employment to a third party entity, while still benefiting from the labor that workers provide. Directly employed workers hired under “shortterm contracts” (kyeyakchik) have no legal claim to job security, seniority, and upward mobility, which allowed companies to employ two classes of workers that perform similar duties but are compensated unequally while avoiding formal practices of gender segregation. Independent contracting (tokŭpkyeyak) and “special employment arrangements” (tŭksugoyong) also created structurally ambiguous employer–employee relations that excluded workers from the ability to form unions and demand collective bargaining agreements, as guaranteed under existing labor law frameworks. The liminal location of irregular workers in the boundaries of formally regulated employment has created interlocking systems of gender and employment discrimination. Women who are vulnerable to discriminatory practices have also become vulnerable to two-tiered employment practices that confine women to jobs plagued by chronic insecurity, low wages, few workplace benefits, and little to no chance for career mobility. The use of irregular employment status as a proxy for gender discrimination has also rendered it difficult for workers to access basic labor rights such as the right to form a union and secure a collective bargaining agreement to challenge the downward pressures on wages and working conditions. By arbitrarily classifying workers into various forms of irregular employment, employers are able to avoid the obligation to abide by existing labor standards and submit to workers’ demands for union recognition and collective bargaining agreements. In the next section, I discuss how and under what conditions women workers in irregular employment arrangements have attempted to overcome the legal liminality of their employment status.

The birth of the Korean women’s trade union movement The interlocking nature of gender and employment status discrimination resulted in the disproportionate recruitment of women into irregular employment, creating the conditions for women workers to be among the first and most visible groups to rise up against the discriminatory terms of irregular employment. One of the first struggles waged by irregularly employed women actually took place against their own union, the Hyundai Motors Union in Ulsan. Immediately following news of the company’s planned dismissal of thousands of workers after the 1998 legalization of mass layoffs, the Hyundai Motors Union in Ulsan waged a 14-day strike. Older women (ajumma) employed in the company cafeteria joined male factory workers in this highly confrontational and militant workplace occupation. After state riot police violently disrupted the strike using the rationale that it threatened the nation’s economic recovery, the union and management negotiated a resolution, which the union deemed a victory. There was one caveat, however. The union consented to an employer proposal to formally dismiss 277 workers under the new law, 144 of whom were women who worked in the company cafeteria. The terms of the proposal included the re-employment of dismissed cafeteria workers as subcontracted workers under the management of their own union. This meant that dismissed workers not only lost their direct, permanent

72  Jennifer Jihye Chun jobs with a full range of benefits, but they were also re-employed doing exactly the same work under lower-paid, less secure conditions as indirect employees of an external subcontractor. In her investigation of the case, Kyoung-Hee Moon explained: “The union’s agreement to the proposal was a great shock to the female workers who were actively participating in the general strike, not only attending the collective actions but also providing all the unionists in the strike with three meals every day” (Moon 2006: 4). The women cafeteria workers initially accepted the layoffs and the terms of their re-employment with the understanding that they would be given their permanent jobs back once the company’s economic situation improved. However, when news of the company’s recovered profit levels did not result in the end of their indirect employment, the ajumma cafeteria workers reinitiated their struggle in August 1999. This time, however, their anger was directed against the union, which refused to support their demands for direct employment. The women escalated their struggle into a desperate hunger strike to expose the gravity of their situation. Yet male unionists condemned the women workers for being “selfish” and for purposely defaming the union’s reputation, and attempted to prevent news of the women cafeteria workers’ struggle from reaching the broader public. When the union eventually agreed to look into their demands, the women cafeteria workers agreed to end their 14-day hunger strike in January 2000. However, they were unable to elicit the support of the broader labor movement, and the women cafeteria workers returned to their subcontracted jobs with no change in their employment status or working conditions. According to union leader Choi Jong-Hee, “the most difficult part of their struggle was the confrontation with male unionists who used to be their friends yesterday but turned out to be their enemies today” (Moon 2006: 5). By sacrificing the job security of its negligible female membership, the male-dominated union showed how gender subordination could operate as a powerful mechanism for justifying downgraded forms of irregular employment for vulnerable groups of women workers. The actions of existing trade unions towards women workers, in addition to the disproportionate impact of layoffs and unemployment on women workers, created the impetus for the KWWA to move forward with plans to establish a separate women-only trade union. The KWWA, which was established by pioneering women factory workers in the 1970s and 1980s and grew into a national umbrella organization for women workers with regional branches across the country in the 1990s, engaged in worker training and education, advocacy, and policy reform. As an NGO organization and not a union, however, the KWWA was limited to individually based advocacy and legal measures for worker redress. Although grassroots-based counseling and advocacy were crucial for addressing the immediate needs of women workers, these strategies had done little to mitigate the wide-reaching and structural consequences of deindustrialization in femaledominated manufacturing sectors. Repeated cases of discrimination and abuse of socially marginalized women workers, particularly in insecure and atypical forms of irregular employment, emphasized to KWWA that the gender discrimination associated with these jobs was a systemic feature of the transformed labor market

Contesting legal liminality  73 and thus needed to be addressed through the cultivation of an organizational base of women’s trade unions. Through the international solidarity experience of Maria Chol-Soon Rhie, who became the KWWAU chairperson in 1996 and had formally worked at the Hong Kong office of the Committee of Asian Women (CAW), the KWWA began researching the experiences of women organizing trade unions in other countries such as India and Denmark. The Incheon Women Workers’ Association (IWWA), which had a more radical orientation as a result of its experience with massive job loss among women in the labor-intensive manufacturing sector, was a vocal supporter of the creation of a women’s trade union. During a forum celebrating the tenth anniversary of the KWWAU, Choi Sang-rim, the chairwoman of the IWWA who would become the first president of the National Korean Women’s Trade Union (KWTU), asked, “How can we organize women workers who lost their jobs, who now work as irregular workers but don’t know when they may lose their jobs?” (Choi 1997). In August 1999, the KWWAU established the National Korean Women’s Trade Union (KWTU: chungguk yǒsǒng nojo).11 One of the KWTU’s most significant features is the role of an NGO in its creation. Given the national organizational structure of the KWWAU, in the absence of an existing membership base, the KWTU was able to develop a parallel structure with a central office and regional branches. The KWTU also established bylaws that allowed any woman, regardless of occupation or regional location, to be a member of the union, creating a flexible membership structure for irregularly employed women workers. This structure was especially important, given that the KWTU sought to organize workers with little, if any, links to existing unions. The majority of the KWTU’s 6,000 members are irregularly employed women over 30 years old working as janitors, cafeteria workers, hotel room cleaners, private tutors, and editors working for broadcast companies. According to KWTU President Choi Sang-rim, “By actually expanding the labor movement and securing the constitutional right of workers to unite, the KWTU is making significant strides in building a model of trade union organization for unorganized workers, which is a major task of the Korean labor movement” (Choi 2000). From the outset, the KWTU’s struggles against gender discrimination were inextricably linked to struggles over the legitimacy of irregular forms of employment classification. One of its first and most defining struggles involved golf game assistants (kyǒnggi bojoweon), commonly known as “caddies” (k’aedi), at the 88 Country Club (88CC).12 In spring 1999, the 88CC management ordered the dismissal of all caddies over the age of 40 under the pretext that older women were too “old” to avoid accidents and thus unfit for the job assisting golfers on an 18-hole course. According to the 12 dismissed women over the age of 40, this policy was an excuse for the management to hire “young caddies with pretty faces” (KWWAU 1999). According to one woman who later became a branch union leader: Management told us that customers did not want old caddies. But I could not understand. This is a specialist job, why does age matter? And in fact,

74  Jennifer Jihye Chun older women who have worked as golf game assistants have more experience that makes them better at their job. Service should not be defined by one’s body.13 To fight the management’s discriminatory age and gender policy, the dismissed golf game assistants sought assistance from the existing union. However, the union also rejected their request, emphasizing that golf caddies were not technically “workers” and thus could not join the union. In order to overcome the barriers to union representation, the dismissed golf game assistants sought the support of the KWWA and proceeded to wage a successful 14-day protest for reinstatement. These women helped establish one of the first KWTU branch unions in October 1999, with 60 founding members. The branch union’s early activities were focused on building the confidence and collective identity of its members, which was critical to countering the management’s subsequent backlash the following spring. When the union approached the management to negotiate a collective agreement, the management rejected its demands on the grounds that caddies were “self-employed independent contractors,” not “real workers.” Then, in typical union-busting fashion, the management suspended the employment of 11 union leaders on April 25, 2000 and used personal intimidation and direct threats to union members to try to break the union. Of particular disrepute was the management’s assertion that “caddies were the kind of women that needed a beating.” In response to the management’s blatant sexism and gender discrimination, the 88CC branch union almost unanimously voted (92.7 percent) to strike. Although most union members did not expect to win, the strike had become about basic issues of dignity and justice for socially disadvantaged women workers, issues that were central to the birth of democratic union struggles waged by female factory workers in the 1970s and central to the legacy of social movement organizations such as KWWA and KWTU (Park et al. 2001). To alert the broader public to the severe discrimination they faced both as devalued women and workers, the union traveled from the exclusive and remote site of the country club located on the outskirts of Seoul to the city’s downtown core, including the busy shopping district of Myongdong, a historical site of labor protest. The union also staged public protests in front of the Ministry of Labor and the Ministry of Veterans Affairs to demand the recognition of golf caddies as legitimate workers with the right to basic labor protections under national labor laws. Despite the 88CC management’s insistence that golf caddies were self-employed, not directly hired employees, golf caddies emphasized that the 88CC management engaged in activities such as hiring and firing practices, designating work schedules, regulating working conditions, and even doling out arbitrary punishments and penalties for violating work rules, a practice that golf caddies found particularly distressing. Kim Kyung Sook, the 88CC branch union general-secretary asserted, “Could those at the Ministry of Labor or the Labor Committee work for just three months as a golf game assistant and then not make a decision based on the actual reality [that golf game assistants are workers]?” (Korean Contingent Workers’ Center 2002). For the union, the “justice” of their fight did not stem from abstract interpretations of the contractual terms of independent contracting;

Contesting legal liminality  75 it resided in the “spirit of the labor law” that generations of Korean workers, including women workers, had fought to instill in the treatment of workers despite repressive employers and the state. After 43 days, the KWTU branch union negotiated the first collective agreement for golf caddies, a feat that initially seemed impossible for “specially employed workers” embroiled in structurally ambiguous and complicated employment arrangements (tŭksugoyong). Although the contractual employment status of golf caddies remained unresolved, this victory set several important precedents. First, despite the 88CC management’s rejection of the contractual status of golf caddies as workers, they consented to the golf caddies’ demands to negotiate wages and working conditions through the union, demonstrating that union gains were possible in the context of legal liminality. Second, it highlighted the fact that despite the myriad barriers to unionization, specially employed workers such as golf caddies could establish a strong union through grassroots organizing, catalyzing a wave of unionism among golf caddies at country clubs around the country. Third, the 88CC union’s struggles helped project the issue of “special employment,” especially in relation to highly atypical and socially invisible workers like golf caddies as well as private tutors and insurance salesman, onto the consciousness of the broader labor movement.

The explosion of irregular workers’ struggles in the maledominated labor movement Although the struggles of women cafeteria workers and golf game assistants helped dismantle assumptions about the “unorganizability” and “passivity” of women workers, the mainstream labor movement largely continued to view them as “peripheral” and “atypical.” It was not until the explosion of male-led irregular workers’ struggles in 2000 that the KCTU and other labor activists began recognizing the urgency of the issue. Bitterly fought struggles waged by fixed-term (temporary) contract workers at Korea Telecom (KT), independently contracted “Remicon” ready-mix concrete truck drivers, and subcontracted manufacturing workers at the Carrier Corporation “awakened” labor activists to the severe discrimination associated with various forms of irregular employment. Particularly distressful was the “solidarity crisis” between regular and irregular male workers within the KCTU. In the case of the KT Contract Workers’ Union, despite its extreme and militant tactics during the course of 512 days, the union failed to win recognition for the legitimacy of their demands from either the KT management or the existing KT (regular workers) union (Chun 2008). By the time the E-Land Trade Union, led by women working as low-paid cashiers, staged a militant occupation of E-Land’s flagship Homever store in the World Cup Stadium shopping complex in July 2007, the issue of irregular employment had become a priority of the organized labor movement. Since 2004, KCTU and FKTU leaders had vehemently opposed the passage of the Irregular Employment Protection Act (pijŏngkyujik bohobŏb), staging hunger strikes and public protests at the National Assembly. Like other neoliberal labor reforms, the Irregular Employment Protection Act was criticized for creating legal pathways for illegal

76  Jennifer Jihye Chun employer practices. Although the Act required businesses to convert non-regular employees to regular employees after two years of continuous employment, employers did not have to provide any justification for firing workers within the two-year period, which the law’s critics argued rendered workers more, not less, vulnerable to heightened discrimination and abuse. The KCTU vigorously condemned the Act, calling it an “evil law” (akpŏb), a charge used to discredit the legitimacy of labor reforms under past military dictatorships. The inability of striking KTX train attendants to win their struggle for employment reclassification, which in June 2007 had reached 500 continuous days, further illuminated how debilitating irregular employment was for striking workers. To expose the infringement of workers’ rights under neoliberal labor policies, the KCTU-affiliated E-Land General Trade Union timed its militant occupation with the Irregular Employment Act’s implementation date. The E-Land Union, which was one of KCTU’s first unions to organize irregular workers, learned of the dismissals of retail and supermarket cashiers and sales assistants working in E-Land stores in the months leading up to July 1, 2007. The majority of workers were women over the age of 30 earning approximately 800,000 won a month, well under the average monthly wage. Although workers were technically hired under short-term contracts, most workers had worked continuously for years with little indication that the terms of their employment were finite. Many workers did not regard the company’s contracts with much credibility, given that supervisors periodically asked them to use their sister’s or friend’s name to renew their contracts so that they could get around the provision of benefits. Thus, when the management used the rationale that the end of workers’ fixed-term contracts meant the termination of their employment, dismissed workers joined the union’s plans to strike. The physical space of the union occupation of the E-Land Homever store mirrored a battle zone. Outside the store, the usually lively commercial area was deserted and the store’s main entrance was blocked by over three dozen riot police. Inside the store, union members were camped out on mats next to the row of locked-down cash registers at the front of the store. Colorful union banners spread across the walls inside the store clearly indicated the terms of the union struggle: “Abolish irregular employment.” By blocking the revenue flows from the customers to the company coffers, striking unionists hoped to bring E-Land “to its knees” and to win their struggle for employment reclassification. Since many women had never participated in a strike, let alone a militant workplace occupation, union leaders gave impassioned speeches. They led striking workers in rousing chants that ended with the phrase [we will] “struggle to the death” (kyǒlsa t’ujaeng). The union also showed films like A Single Spark about labor martyr Chun Tae-Il who set himself on fire on November 13, 1970 to demand that repressive employers and the state abide by national labor laws. Prominent political leaders from organizations like the Korean Democratic Labor Party visited the strike site to express solidarity and support for the heroic efforts of the E-Land workers. Participating in oppositional collective actions against employers is a crucial dimension to building the class consciousness and solidarity of workers, as cited in many studies on working-class formation. Defining a target against which a

Contesting legal liminality  77 common struggle is waged creates a shared sense of identity and purpose among different individuals, who through their collective experiences of protest and mobilization begin to identify as a “collectivity-in-struggle” and, thus, a historically defined class (Przeworski 1985). Strengthening the will and resolve of striking workers through ideologically charged escalations with state authorities, however, can also perpetuate gendered hierarchies and norms. Preparing striking workers for the moment when the riot police storm the strike site and physically drag them out of the store reproduces what Insook Kwon (2000) calls a “masculinized activist model.” Such confrontations are geared toward exposing the state’s disregard of democracy and the extent of its repressive authoritarianism, but they also reinforce “cultural scripts that dramatize masculine heroic resistance against a repressive state” (Kwon 2009: 103). Thus, whether the protagonist of the struggle is male or female, militant forms of unionism reinscribe gendered hierarchies in the dynamics of class struggles. Once the riot police violently intervened in the E-Land Union’s occupation of the Homever store, the union was forced to end its militant occupation. To continue escalating their struggle, the union immediately organized solidarity protests at 40 different Homever retail locations and called for a consumer boycott of all E-Land products. The union also elicited the support of 37 civic organizations and international unions like UNI, a global union for commerce workers with over 15 million members and 900 affiliate unions, which condemned labor repression as a violation of human rights. These efforts helped project the E-Land Union’s struggle to a broader national and international audience, yet striking E-Land workers have been unable to win their battle for the reinstatement of dismissed cashiers as regular employees. The union’s refusal to compromise on its basic demands – the reinstatement of fired workers as regular employees – emboldened its staunchly anti-union employer, which viewed the union’s occupations as illegal and politically motivated. As the classification struggle intensified into a highly polarized and protracted battle, with little sign that either side was willing to compromise, the E-Land union president Kim Gyeong-wook recognized the grim reality facing the union. On its 300th day of continuous struggle, Kim stated: “The E-Land labor dispute will only end if the union dies or the company dies” (Hankyoreh 2008b). Militant classification struggles like the E-Land Union’s occupation emphasize the potential economic leverage that irregularly employed workers have over a multi-billion dollar Korean conglomerate (chaebol). Despite the fact that retail cashiers are one of the lowest paid groups in the labor market, their 21-day sit-in strike resulted in an estimated loss of 34 billion won ($37 million) for the E-Land group. If the state had not intervened in the labor dispute and the company had been forced to negotiate directly with the union, the outcome may well have been different. However, it is precisely because the E-Land group could count on police intervention to disrupt the union’s strike that the company was able to end the union occupation and undercut the economic leverage of its strike. Given the continued role of the state in intervening in labor struggles on behalf of capital over labor, pursuing an “all-or-nothing approach” to classification struggles generates high costs for workers and results in prolonged labor disputes that rarely end well for the workers involved.

78  Jennifer Jihye Chun

Divergent approaches to contesting legal liminality Classification struggles waged by irregularly employed women workers reveal the highly contested nature of labor disputes over the terms and conditions of irregular employment. Although the legalization of market-driven labor reforms was intended to give companies the flexibility to expand and contract their workforces in response to fluctuations in the business cycle, many employers have utilized irregular employment as a vehicle for arbitrarily reducing wages and converting stable, permanent jobs into lower-paid and insecure ones. The subordination of women in the labor market has made them particularly vulnerable to the proliferation of downgraded forms of irregular employment, masking blatant forms of gender discrimination with employment status discrimination. The legal liminality of irregular employment has resulted in a climate of perpetual conflict and disagreement. While some state authorities have intervened in legal disputes on the side of irregular workers’ unions, other state authorities have contradicted their rulings, leaving striking workers in a constant state of “legal limbo.” Rather than allow the courts to define the terms of their employment status, irregular workers have taken their legal struggles to the streets. From the early struggles of the 88CC Golf Game Assistants’ Branch Union to the recent struggles of the E-Land Trade Union and the KTX Crew Workers’ Branch Union, irregularly employed women workers have waged very public and dramatic struggles to reclassify the terms and conditions of their employment in the public, rather than the legal, arena. A closer look at the protest repertoires of these struggles highlights the contours of divergent approaches to contesting the legal liminality of irregular employment. On the one hand, militant forms of unionism approach labor’s classification struggles as an “all-or-nothing” battle. Whether it involves staunch opposition to the Irregular Employment Protection Act or a polarized standoff against employers like the case of the E-Land Union and the KTX train attendants, overcoming the discriminatory labor practices associated with irregular employment is inseparable from eliminating the legality of the form itself. Rather than adapt its strategies and tactics in the face of intense opposition, militant unions and the broader KCTU-led labor movement have vowed not to compromise. Their staunch opposition to the legitimacy of any form of irregular employment has resulted in increasingly prolonged and unresolved labor disputes lasting in excess of two to three years. One of the most distressing aspects of prolonged labor disputes is the personal and psychological cost to workers. Militant labor disputes take an exacting toll on the well-being of striking workers as well as their families. In the case of striking women workers from Giryung Electronics, who worked under a labor dispatch agency at meager wages and were then laid off, their strike has extended beyond the course of three springs. The long-term nature of their struggle is not indicative of the union’s strength, according to one of the few remaining striking Giryung workers; it represents an “act of survival” for women who are the economic heads of their households. Like striking KTX attendants, over the course of over 1,000 days, they occupied company buildings, shaved union members’ heads, endured

Contesting legal liminality  79 life-threatening hunger strikes, and scaled high-rise metal structures. Hankyoreh 21 magazine explains how striking Giryung Electronics workers “have done everything except die” (Cho 2008). Their desperate measures have yielded few results; without the intervention of the state in decisively eliminating the legality of irregular employment, workers are locked into an indefinite struggle against their former employers at Giryung Electronics – one which the company has no obligation or inclination to resolve and one which fewer and fewer workers are able to withstand. On the other hand, organizations like the Korean Women’s Trade Union have placed a higher premium on grassroots organizing and a welfare-based approach to improving the living and working conditions of marginalized women workers, even if it means accepting the existence of irregular employment. Rather than escalate prolonged confrontations against employers to reclassify the terms of employment, the KWTU had made increasing wages standards and working conditions a part of their broader strategy to build strong and lasting unions. The KWTU’s stance towards the Irregular Employment Protection Act is indicative of its conflicts with the ideologically driven position of KCTU-affiliated unions. Unsure how the Act would impact irregularly employed women workers, the KWTU held educational workshops with its members around the country to discuss the pros and cons of the law. After internal debate and discussion, the membership decided to cooperate with government officials to implement the law. The KWTU’s decision was vehemently criticized by many KCTU unionists as the action of a “yellow union,” a particularly venomous insult to many women worker activists, who vigorously and historically fought against government-controlled company unions in the 1970s and established the first democratic unions (minju nojo) in South Korea. By prioritizing the basic welfare of socially marginalized women workers, the KWTU is focused on improving the wages and livelihoods of some of the most vulnerable workers in the labor market. Its organizing strategies utilize a gendered approach towards building the confidence and sense of ownership of women union members. Its approach to collective action also recognizes that improving the social and economic conditions of women’s work should not be sacrificed to the ideological goals of the broader labor movement. The continued dynamism of the 88CC Golf Game Assistants’ Branch Union is indicative of the durability of the KWTU’s long-term union-building strategy. Since the branch union negotiated its first historic collective bargaining agreement, it has faced continued efforts by 88CC management to break the union. In 2009, almost ten years after its founding, 88CC golf caddies won a historic victory in its classification struggle. The National Labor Relations Commission ruled for the first time that golf caddies must be recognized as workers under the Labor Standards Act. In reflecting on this victory, the 88CC branch union president explained that what was important to the union over the past ten years was not so much the legal struggle to win contractual recognition as workers, but the union’s perseverance in building the organizational capacity to resolve labor grievances of their own accord through continued negotiations with management (Cho 2009). Given the KWTU’s relatively small size, especially in relation to the KCTU’s 600,000-

80  Jennifer Jihye Chun strong base, the KWTU’s grassroots organizing efforts are still far from changing the political, economic, and social realities facing the vast majority of Korea’s unorganized irregular workforce. Yet the union has strived to redefine the legal liminality of irregularly employed women workers from a position of institutional vulnerability to a position of organizational dynamism in which workers are able to adapt to the twists and turns of contradictory legal interpretations and rulings. Failing to understand the implications of the shifting social and political terrain of unionism has dire consequences for the future of workers and the broader labor movement. Although labor militancy helped end the past era of labor authoritarianism, it has limited potential for generating concrete forms of leverage for irregular workers under today’s neoliberal state regimes. Not only has the state been pivotal in legalizing market-driven forms of employment reclassification, it is also more likely to side with employers during the course of a heated classification struggle. Rather than rely on solely militant forms of unionism, rooted in the legacies of the past, the pervasive state of legal liminality plaguing Korea’s rapidly expanding irregular workforce calls for new political imaginations and more democratic solutions. Given the assault on workers’ welfare under legalized forms of irregular employment, organized labor needs to develop forms of resistance that are as militant about workers’ lives and their well-being as they are about principles and ideologies. Organized labor also needs to cultivate a broad-based political agenda that can democratize neoliberal labor reforms while transforming the deep and historically entrenched social hierarchies that render marginalized groups such as women more vulnerable to neoliberal labor practices. Ultimately, reproducing gendered structures of domination and subordination fails to address the fundamentally interlocking nature of gender and class oppression in today’s neoliberal employment regimes.

Notes An earlier version of this chapter was published as “Legal Liminality: The Gender and Labour Politics of Organizing South Korea’s Irregular Workforce,” Third World Quarterly 30, no. 3: 535–50. 1 Min Jeong Kim, “1000 Days: Ongoing Struggles,” article posted on website of Asia Pacific Youth Network, an affiliate of Public Services International (May 14, 2009) . 2 On March 1, 2006, approximately 400 female KTX train attendants joined 17,000 (primarily male) workers from the Korean Railway Workers’ Union (KRWU), an affiliate of the Korean Federation of the Transportation, Public, and Social Services Workers Unions under the Korean Confederation of Trade Unions (KCTU), in a mass strike against KORAIL. Male unionists went back to work after four days; striking KTX attendants received formal dismissal notices two months after the strike ended. 3 On December 24, 2007, the KTX Crew Branch Workers Union offered to end the strike on the condition that they were rehired as “two-year contract workers,” but the company refused their offer. “Another tough year awaits contract workers,” by Bae Ji-sook, Korea Times January 1, 2008. 4 Ibid.

Contesting legal liminality  81   5 For more information on the role of public dramas in labor struggles by workers in triangulated employment arrangements, see Chun (2005) and chapter 5 in Chun (2009).   6 Quotation from letter sent to Jennifer Chun, dated December 20, 2007, e-mailed by KORAIL General Manager on behalf of Mr. Chul Lee, CEO and President of KORAIL in response to “the petition that you submitted to the Korean president through Ms. Cho Sun Kyung, Professor of Ewha Womans University.” The solidarity appeal and petition are online at .   7 Ahn (2002: 3).   8 For an in-depth discussion of the distinction between contingent and atypical employment in South Korea, see Ahn (2006). Also see Cranford and Vosko (2006).   9 The role of symbolic leverage in labor’s classification struggles is discussed in depth in Chun 2009. 10 An estimated 300,000 workers were already employed in 3,000 labor dispatch companies by 1995. See Rhie (1996). 11 The two other unions included the Seoul Women’s Trade Union and the KCTUaffiliated Korean Women’s Federation of Trade Unions. 12 For extended discussion of this case, see Chun 2009, chapter 6. 13 Interview with 88CC union leader, Kyonggi province, Korea, October 11, 2002.

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